This survey has highlighted the inroads that technology has been making, and will continue to make, at hedge funds. By no means is this an indication that people are not important and don’t have critical roles to play throughout a fund’s organization. However, roles and responsibilities are shifting. Across the front, middle and back office, individuals are spending less time performing routine tasks and are being redeployed to analytical and other strategic assignments. The amount of data available to front office analysts is exponentially larger than in years past. Analysing investment theses requires an awareness and ability to interpret this data, as well as to contemplate how others, including computers, may be doing the same. Middle and back office team members need to understand their technology solutions to be able to identify and investigate non-routine transactions, errors or reporting irregularities as well as to be able to more comprehensively analyse financial performance to add value to strategic business decisions. These individuals can be more focused on delivering “operational alpha” rather than checking every single transaction. These developments have changed the type of talent that hedge fund managers require, as well as how they retain these individuals despite significant competition from hedge funds and other industries.
Beginning a dialogue on the relationship between hedge fund (HF) leadership and emotional intelligence (EQ) is the objective of this research paper. By composing an exploratory study determining the relevance of EQ in HF leadership, the researcher aims to lay a foundation for future discussion and debate. To our knowledge, this is the first study of its kind in the field.
The study utilised Goleman’s (1998) EQ framework to examine the growth impact of a HF leader’s EQ. More specifically, how determinant is a HF leader’s self-awareness (SA), self-regulation (SR), motivation, empathy and social skill in his success? Goleman’s model was chosen due to its applicability to both portfolio management and organisational leadership – a HF leader’s primary responsibilities.
The empirical evidence suggests not only is a high level of EQ beneficial to successful HF leadership – it was deemed vital in specific instances. If the fund’s leadership possessed a high level of EQ, the benefits reached beyond performance and AUM growth. Founders with a high EQ positively impacted the culture and climate, and a leader with a lower EQ had converse effects. The leadership of failing funds often had low EQ levels.
What is emotional intelligence?
Dulewicz and Higgs (2000, p.343) contest the roots of this “nebulous” construct of EQ appear to “lie in the apparent inability of traditional measures of rational thinking such as IQ tests or grades to predict who will succeed in life.”
Robotics. Big data. Artificial intelligence. Blockchain. Just five short years ago, and most would say even more recently, few would have uttered any of these words in the same breath as “hedge fund.” Whether viewed as innovation or evolution, the hedge fund industry has joined with the vast majority of the world in acknowledging the advent of, and the need to embrace, these business-altering technologies.
Technology-driven disruption is changing financial services organizations enterprise wide. Today, it’s not about having a digital strategy — it’s about defining your business strategy in a digital world. Disruptive innovation will touch every aspect of our lives. It is the future of business, and the world. The accelerated pace at which everything is changing means that the industry has to look at things differently and think in new ways. The industry must ask – how do we ensure we exist tomorrow? How do we streamline and automate our operations? How do we come up with new ideas and modernize our business model? The industry must become more agile, to anticipate and manage shifting investor demands, embrace convergence across asset classes and seize opportunities as they present themselves both within traditional financial services and beyond.
Jack Inglis, CEO, AIMA and Tom Wrobel,CAIA, Director, Alternative Investments Consulting, Societe Generale Prime Services
Managed futures funds have been the source of significant interest among investors, particularly since the sector outperformed so spectacularly during the global financial crisis. Since the crisis, allocations have increased – growing from a little over $200bn at the end of 2008 to around $340bn by the end of 2016.
There will always be caution among some investors, of course. Describing managed futures funds as “black boxes” may be inaccurate (and rather unfair), but many institutions clearly continue to avoid the sector.
That is why we wanted to produce this educational paper. For AIMA, the managed futures industry is an essential constituency of our membership. Societe Generale Prime Services has a full-service multi-asset platform, and specialises in servicing CTA firms and is passionate about improving understanding of the sector. CTA trend-followers and other managed futures funds offer tremendous benefits to investors – and have done so for many, many years, not only in 2008.
This is not a marketing paper and we recognise that CTAs are not for everybody. There are always periods of underperformance, but collectively and on average, CTAs offer competitive risk-adjusted and non-correlated returns, and have historically demonstrated their ability to provide downside protection. We hope, with the help of this paper, that investors will be able to make better informed decisions about the sector.
Introduction by Joanna Page, Partner, Allen & Overy and Francis Kean, Executive Director, Willis Towers Watson
Welcome to this the fifth edition in a series of surveys on directors’ liabilities, brought to you by the international law firm Allen & Overy LLP and the global advisory broking and solutions company Willis Towers Watson.
We began this exercise back in 2011 when – fresh from the throes of the global financial crisis – directors and high-ranking executives in public and privately-held corporations were feeling particularly exposed to liability and subject to an unprecedented degree of scrutiny. That said, the incidence of actual criminal, civil or even regulatory proceedings against individuals was still vanishingly small. To plug that perceived accountability gap, the last six years have seen a steady increase in laws and regulations aimed at senior executives.
Over the following pages, we have revisited several of the themes that have consistently presented themselves in previous years, as well as highlighting several new developments that add to the breadth of concerns keeping directors and officers awake at night. We have looked not only at the risks and exposures facing business leaders, but also how well they feel their insurers are responding. In all, we surveyed 127 directors, non-executive directors, in-house lawyers, risk officers and compliance professionals, working in companies operating all over the world. We thank them all for taking the time to complete our survey and allowing us to create this market snapshot.
Driven by our ongoing commitment to understanding the dynamics of the hedge fund marketplace and bringing the latest industry color to our clients and friends, each year Seward & Kissel conducts various studies of the most important trends we are seeing impacting the hedge fund community. This year, for the second year in a row, we have conducted a study covering side letters negotiated by our hedge fund manager clients during the period July 1, 2016 through June 30, 2017 (the “Study”).
In our 2015/2016 Study, 87% of the side letters were with managers in business for two or more years at the time of execution (“Mature Managers”), and 13% were with managers less than two years old (“Newer Managers”), while the current Study showed a change to 80% of the side letters being with Mature Managers and 20% being with Newer Managers. Given the rising trend for side letters with Newer Managers, this Study, unlike the 2015/2016 Study, will also cover key data points on the Newer Managers. We believe, however, that the continuing underrepresentation by Newer Managers in this statistic is attributable primarily to the increase in the use of founders’ classes over the past several years which decreases the need for side letters with Newer Managers.
The Study is broken down into four parts: the Managers, the Investors, the Terms, and a newly added Comparison to Separately Managed Accounts. The four parts of the Study, when read together, provide valuable insights into the negotiation with hedge fund investors in the current environment.
Many sophisticated quantitative investment managers employ systematic carry strategies in their portfolios, yet they remain poorly understood by the investing public due to a tendency to overgeneralize from a limited set of specific examples. Carry strategies are, in fact, a general class of investment opportunities, and can capture a wide array of phenomena in futures and forward markets. In this paper, we will explore three different types of carry trades, including relative value and directional approaches. We will attempt to debunk the perception that carry is, by definition, a highly-levered relative value strategy, and demonstrate that there is not a “one size fits all” approach to the carry trade.
In a 2016 Campbell & Company white paper entitled “An Introduction to Global Carry,”1 the basic premise of generalized carry was introduced. “Carry” is an asset’s expected total return, positive or negative, assuming its price is unchanged.2 Regardless of the underlying asset, a carry strategy seeks returns from the net benefit or cost of holding that asset, in excess of the potential for price appreciation/depreciation.
Imagine for a moment that the hedge fund industry contains three parallel sectors, divided not by investment strategy or geography but by size of firm. One includes firms managing $1bn or more in assets - there are 703* of these accounting for 88%* of the total hedge fund industry AUM. This group’s star managers feature regularly in the pages of The Wall Street Journal and the Financial Times. Many of its constituents are big institutionalised businesses and its clients include some of the largest institutional investors in the world, such as sovereign wealth funds and public pensions. It contains only a little more than 10% of the industry in terms of numbers of firms but manages close to 90% of the assets.
Much attention focuses on the “billion-dollar club” and firms close to attaining this status. Industry research and performance indexes tend to be skewed to the larger firms. Consultants’ lists of approved hedge funds are dominated by the larger brands. The second sector contains firms managing between $500m and $1bn – there are 319* of these managing 6%* of the total hedge fund industry AUM. Its investor base includes large institutions but family offices and funds of funds are more prevalent. Many of its constituents are building brands and thinking about the steps they need to take to exceed the $1bn threshold.
This is the fifth edition of The Hedge Fund Journal’s biennial 50 Leading Women in Hedge Funds report, generously sponsored by EY. Some 45 women in this report have not appeared in previous reports, published in 2015, 2013, 2011 and 2010. No less than 21 women in this report are portfolio managers of hedge funds. Eight work in sales, investor relations or marketing. Seven are practising lawyers. Four are COOs. Three work at prime brokers. Two are risk managers, two are allocators, one is a finance director, one a regulatory consultant and one a researcher. Women have attained the highest echelons right across the hedge fund industry.
Among the portfolio managers, many work for large hedge fund managers, which run over $10 billion, and several of them have personal responsibility for running billions. They may have been active for as many as 20 years, yet this report is, in some cases, their first media exposure. As credit and alternative lending are of growing importance to the hedge fund industry, it is also notable that women occupy senior portfolio manager roles at many leading credit houses: Avenue Capital, BlueMountain, Canyon, Gramercy, Oak Hill and TCW.
Women such as Ellen Wang, Michelle Kelner and Maggie Arvedlund, who have launched their own companies, generally start with lower assets than the largest male-led launches though the success of Sonia Gardner’s Avenue Capital shows how they can grow over time. It is perhaps surprising when credible academic studies based on large samples and long time periods, such as The Performance of Female Hedge Fund Managers by Nicole Boyson and Rakesh Aggarwal, find no difference between performance of male and female portfolio managers. We think the jury is out on some surveys that suggest that women portfolio managers have generated spectacular outperformance.
Talent management has been increasingly on the radar of fund managers and investors alike. The industry has always been on the lookout for the next generation of star managers. However, rarely in the past did hedge funds find themselves competing against other industries for the top talent. Today, not only do fund managers compete against each other, but they are also battling technology and Internet giants as well as venture capital and start-up companies across all industries for the best people. Additionally, managers need to be cognizant of the changing demographics of the workforce — what attracted and retained talent a decade ago is significantly different than what today’s employees are looking for. Managers big and small alike are taking notice and implementing programs that they believe will help them secure the talent that will drive their business forward in the future.
Talent management programs are evolving, as managers focus on attracting and retaining talent
After growth, talent management is viewed as the top priority of hedge fund managers. In many ways, the two objectives — growth and talent — are aligned. A manager requires the right employees to execute on their growth objectives.