More than One-Third of Hedge Fund Professionals Feel Pressured to Break the Rules in Pursuit of Alpha

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More than One-Third of Hedge Fund Professionals Feel Pressured to Break the Rules in Pursuit of Alpha
Foto: MichaelMaggs. La búsqueda de alfa empuja a un tercio de los profesionales de hedge funds a saltarse la ley

An independent survey of hedge fund professionals commissioned by law firm Labaton Sucharow LLP, HedgeWorld and the Hedge Fund Association, revealed that nearly half (46%) believe that their competitors engage in illegal activity, more than one third (35%) have personally felt pressure to break the rules, and about one third (30%) have witnessed misconduct in the workplace. 

When asked if they would blow the whistle or report the misconduct, 87% of respondents said they would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program.  This investor protection program has broad extraterritorial reach and offers eligible whistleblowers, regardless of nationality, significant employment protections, monetary awards and the ability to report anonymously.  To ensure that adequate funds are available to pay awards, Congress has established a replenishing Investor Protection Fund, which currently has a balance in excess of $450 million.

“While wrongdoing in the hedge fund industry may not be as widespread as many outside the industry believe, it does occur, and people in the industry are aware of it,” remarked Christopher Clair, Managing Editor at Hedgeworld. “It’s only when we eliminate the unfair advantages sought and exploited by some that true alpha can be found.”

“The high percentage of hedge fund professionals that are aware of the SEC Whistleblower Program and are willing to report wrongdoing is extremely encouraging,” said Jordan Thomas, Chair of the Whistleblower Representation Practice at Labaton Sucharow.  “Without individuals willing to report possible securities violations, internally or externally, responsible organizations and law enforcement authorities cannot police the marketplace effectively and efficiently.”

The survey’s top ten findings include:

  • 46% of respondents reported that their competitors likely have engaged in unethical or illegal activity in order to be successful.
  • 35% of respondents reported feeling pressured by their compensation or bonus plan to violate the law or engage in unethical conduct, while 25% of respondents reported other pressures that might lead to unethical or illegal conduct.
  • 30% of respondents reported that they had personally observed or had first-hand knowledge of wrongdoing in the workplace.
  • 87% of respondents would report wrongdoing given the protections and incentives such as those offered by the SEC Whistleblower Program, while 83% of respondents were aware of this important program.
  • 29% of respondents reported that it was likely that they would be retaliated against if they were to report wrongdoing in the workplace.
  • 28% of respondents reported that if leaders of their firm learned that a top performer had engaged in insider trading, they would be unlikely to report the misconduct to law enforcement or regulatory authorities; 13% of respondents reported that leaders of their firm would likely ignore the problem.
  • 54% of respondents reported that the SEC is ineffective in detecting, investigating and prosecuting securities violations.
  • 34% of respondents reported that recent regulation and law enforcement scrutiny will weaken the hedge fund industry.
  • 13% of respondents reported that hedge fund professionals may need to engage in unethical or illegal activity in order to be successful and an equal percentage would commit a crime–insider trading–if they could make a guaranteed $10 million and get away with it.
  • 93% of respondents reported that their firm put the best interests of investors first.

“Our members have a deep commitment to corporate integrity,” noted Lara Block, Executive Director of the Hedge Fund Association. “Although some of the findings are troubling, this groundbreaking survey provides valuable insights that will help the industry to further strengthen its investor protection programs and root out any bad actors.”

Julius Baer’s International Wealth Management transaction on track

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Julius Baer’s International Wealth Management transaction on track
. Julius Baer completa la integración de Merrill Lynch IWM en Uruguay, Chile, Mónaco y Luxemburgo

According to schedule, Julius Baer transferred further legal entities in four locations in relation to its acquisition of Merrill Lynch’s International Wealth Management (IWM) business on 1 April 2013. The entities involved are in Uruguay, Chile, Monaco and Luxembourg. This represents another major milestone in the integration process which was launched with the Principal Closing of the transaction and the related acquisition of Merrill Lynch Bank (Suisse) S.A. on 1 February 2013, said the bank in an statement.

 

The transfers will add substantially to Julius Baer’s existing businesses in Uruguay, Chile and Monaco. In the case of Luxembourg, Julius Baer gains a new foothold with a strong presence.

 

Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group Ltd., said: “With the addition of Uruguay, where we are now one of the biggest players, and Chile we have expanded our business massively in the fast growing market of Latin America. In Monaco we strongly increase our presence, adding further momentum to our local business development. Moreover, we enter the market in the important financial centre Luxembourg with a substantial client base, which also opens up new business opportunities.”

 

The financial advisors and client relationships of the concerned entities have been transferred on 1 April 2013, whereas the client assets will be transferred in a staggered manner from Merrill Lynch to the Julius Baer platforms, in line with applicable regulations in the respective markets.

 

The rebranding of the entities will be completed as soon as possible after receipt of the relevant approvals of name changes from the appropriate authorities.

 

“The transaction is well on track. This latest step marks another major milestone in the implementation of the integration process. I am very pleased with the good progress made in the last couple of months and am confident that the upcoming transfers will take place as planned,” Boris Collardi commented.

 

Other major businesses adding substantial scale to follow shortly

 

The other major businesses to transfer, expected to occur during the remainder of the year, are in Hong Kong, Singapore and the UK. All of them will add substantial scale to Julius Baer’s global network, taking the respective local businesses into the leading group of international private banks in these markets.

 

The International Wealth Management business of Merrill Lynch outside the US is an excellent strategic fit for Julius Baer, strengthening the Bank’s presence in key growth markets around the globe and significantly enlarging its asset base. The integration phase which was launched in February 2013 is expected to be completed in the first quarter of 2015, with the bulk of the large entities and businesses transferring in 2013.

 

Santiago Ulloa, Maria Elena Lagomasino, and Michael Zeuner launch WE Family Offices

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Santiago Ulloa, María Elena Lagomasino y Michael Zeuner fundan WE Family Office
Wikimedia CommonsMaria Elena Lagomasino y Santiago Ulloa, founder members of WE Family Offices.. Santiago Ulloa, Maria Elena Lagomasino, and Michael Zeuner launch WE Family Offices

WE is seeking to have a more global presence, reaching out to the US market once their business is already well established in Latin America and Southern Europe. Santiago Ulloa, President of WE, explained in an interview to Funds Society that one of its objectives is to render services to individuals who have assets greater than $100 million.

Ulloa, who was the president of GenSpring Family Office International until the beginning of January, explained the process through which they got renamed to WE. Ulloa along with Maria Elena Lagomasino and Michael Zeuner, ex CEO and ex executive director of GenSpring, respectively, joined the new project of WE. Lagomasino, who is a veteran in this sector, was the CEO of JP Morgan Private Banking prior to joining GenSpring, while Zeuner has always worked alongside Lagomasino both in JP Morgan and in the final stage of GenSping International.

The three partners repurchased the business -TBK Investments-, which Ulloa sold 5 years ago to the American company, in an operation that was closed at the beginning of the year and in which several employees of the company were admitted as partners. Since then they have been working under the brand WE, which has integrated a hundred percent of its staff and all of its clients. The repurchased business is the international business while the domestic side remains within GenSpring.

Their goal is to build  WE into a family office that will persist in time, so that 40 years from now it will be one of the major players and benchmarks in the sector. “We have already been the largest, now we want to be the best”, he emphasized.

WE, which manages Ultra-High-Net-Worth individuals, aims to help its clients in their overall needs, including asset management, taxation, legal, family governance and protocol, among other things, for which a non-discretionary service is offered. “In other words, a true family office”, emphasized Ulloa in his interview with Funds Society.

Ulloa states that WE gets its resources solely and exclusively from an advisory fee that is charged to the client for the services of the family office.

He put a special emphasis on the fact that theway they work allows them to differentiate themselves from many other businesses that have expended in recent times, but which, according to him, cannot claim the same level of independency or transparency.

“All values have been lost, all transparency has been lost. There are many players in the field. The problem that 90% of them have is that they dedicate themselves to financial issues. We are 100% aligned with the client. We are not money managers; we are consultants, strategists for the clients with large assets and we help them in all of the needs they may have, and not exclusively with their financial needs”, he explained.

WE identifies the best managers and puts them at the disposal of the client. They are very interested in private equity, while they are more skeptical when it comes to the hedge funds because they believe that currently there are too many players looking for the same opportunities and there are very few that bring any value.

They have an Investment Committee co-chaired by Ulloa and by Jean Brunel, president of Brunel Associates, who was the CIO of JP Morgan Private Bank in the past. From the committee a macro and a strategic vision is addressed, which is supported by an internal research team along with the support of third parties. “The decisions for asset allocation, strategy and product selection are made here”, he stated.

How does an MBA today differ from an MBA in the 90’s?

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How does an MBA today differ from an MBA in the 90’s?
Foto: Mohnishbahl. ¿Cómo difiere un MBA de hoy respecto al de hace 15 años?

“When Bill Gates was asked about who was Microsoft’s main recruiting competitor he answered: Goldman Sachs”, explains Robert F. Bruner, dean of the Darden School of Business at the University of Virginia. “This reflects that everyone –Wall Street, the consulting businesses, industrial producers- is competing for the same pool of talent”, he adds.

Recruiters must renew their propositions. When a candidate asks “what’s the deal in your company?”, you should be able to answer: “If you work for us, we will teach you to be the very best you can be”.

Robert F. Bruner, discusses the evolution of the MBA program with John Rogers, CFA, president and chief executive officer of CFA Institute in a Take 15 Series video that can be watched in the CFA Institute website. Bruner focuses on the changing perspectives of students towards education and employment, while explaining what recruiters and employers can come to expect out of MBA graduates in the 21st century that may not have been the case in the past.

High Yield Default rates slip modestly in 2013

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High Yield Default rates slip modestly in 2013
Wikimedia CommonsFoto: Expedition 20 Crew, NASA. La tasa de default de la deuda high yield cae ligeramente en 2013

According to a recent report by Fitch Ratings, the U.S. high yield par default rate continues to track closely to the 2012 year-end rate of 1.9%. At the end of February, it slipped modestly to 1.8% (mostly due to the market’s larger size), and Fitch projects a similar level for the first quarter.

March has added filings from gaming operator Revel AC, Inc. and phone directory publisher, Dex Media, and two missed interest payments from oil and gas company GMX Resources and healthcare concern Rotech. These add an estimated $1.5 billion to the year’s default tally of $2.8 billion through February, slightly above the $2.5 billion count of the first two months of 2012. An update of default, recovery rates and other metrics can be found by clicking on the report link below (login required – no cost).

Fitch U.S. High Yield Default Insight — February 2013

ING IM: High Yield bonds offer high single digit returns for 2013

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ING IM: High Yield bonds offer high single digit returns for 2013
Foto cedidaMichel Ho, Client Portfolio Manager ING IM. ING IM: la deuda high yield sigue ofreciendo retornos atractivos

High yield strategies had a great year in 2012. Michel Ho, Client Portfolio Manager for High Yield in ING IM gives a hint of what happened in the fourth quarter of last year and which are the main drivers for the asset class in 2013.

“It all started in December 2011, attracting a lot of investors to this asset class in 2012”, he explains in a recorded interview in ING WebTV. “Supportive monetary policies by European Central Banks and the FED translated in a lower probability of tail risks, the low rate of defaults and general appetite by investors searching for yield were supportive for this asset class in 2012.”

With the strong flows, at the end of December of 2012 cash levels were slightly high, and ING IM has been very active in the new issue market at the beginning of 2013. In terms of strategy positioning ING IM remains slightly above risk in general, overweighed in Asia, holding a slight underweighted position in Europe, but overweighting risk, and with a neutral stance in the US market.

Asked about expected returns for the asset class and the strategy in 2013, Michel Ho explains:  “it’s difficult to say where we’ll be. We expect interesting returns as credit fundamentals are strong, defaults remain low and search for yield is still high, so we see continued inflows in the asset class. Index levels point to a yield of 5% to 7% for the asset class and as active investors we hope to add around 200 bp to this levels”.

Economist Shushanik Papanyan has joined the BBVA Compass economic research team

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Economist Shushanik Papanyan has joined the BBVA Compass economic research team
Foto cedidaShushanik Papanyan. La economista Shushanik Papanyan se une a BBVA Compass

Economist Shushanik Papanyan has joined the BBVA Compass economic research team. Before joining the bank, Papanyan taught at the University of North Texas and the University of Texas at Arlington. Most recently, she worked as a consultant for the Globalization and Monetary Policy Institute of the Federal Reserve Bank of Dallas.

“We are pleased to have Shushanik join us and help us enhance our macroeconomics research,” said Nathaniel Karp, chief economist for BBVA Compass. “Her knowledge about monetary policy, business cycles and international economics will help us improve our models and forecasts.”

Papanyan earned a doctorate in economics from the University of Houston and a master’s degree in international studies from the University of Notre Dame. She earned her bachelor’s in international economics from Yerevan State University in Armenia and is fluent in Russian and Armenian.

Papanyan is often invited to present her research on U.S. business cycles, as well as global economic fluctuations at various academic conferences in the U.S. and abroad. Her work has been published in the Journal of Forecasting, an industry publication.

Karp’s team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates.

The bank’s economic research group includes Kim Fraser, Jason Frederick, Boyd Nash-Stacey, Marcial Nava and Alejandro Vargas.

Economist Shushanik Papanyan has joined the BBVA Compass economic research team

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Economist Shushanik Papanyan has joined the BBVA Compass economic research team
Foto cedidaShushanik Papanyan. La economista Shushanik Papanyan se une a BBVA Compass

Economist Shushanik Papanyan has joined the BBVA Compass economic research team. Before joining the bank, Papanyan taught at the University of North Texas and the University of Texas at Arlington. Most recently, she worked as a consultant for the Globalization and Monetary Policy Institute of the Federal Reserve Bank of Dallas.

“We are pleased to have Shushanik join us and help us enhance our macroeconomics research,” said Nathaniel Karp, chief economist for BBVA Compass. “Her knowledge about monetary policy, business cycles and international economics will help us improve our models and forecasts.”

Papanyan earned a doctorate in economics from the University of Houston and a master’s degree in international studies from the University of Notre Dame. She earned her bachelor’s in international economics from Yerevan State University in Armenia and is fluent in Russian and Armenian.

Papanyan is often invited to present her research on U.S. business cycles, as well as global economic fluctuations at various academic conferences in the U.S. and abroad. Her work has been published in the Journal of Forecasting, an industry publication.

Karp’s team analyzes the U.S. economy and Federal Reserve monetary policy. For its analyses, the economists create models and forecasts for growth, inflation, monetary policy and industries. The economic research team also follows a variety of issues that affect the Sunbelt states where BBVA Compass operates.

The bank’s economic research group includes Kim Fraser, Jason Frederick, Boyd Nash-Stacey, Marcial Nava and Alejandro Vargas.

Robeco: Five lessons from the Cyprus bail-out

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Robeco: Cinco lecciones a aprender del rescate de Chipre
Foto cedidaRonald Doeswijk, Chief Strategist at Robeco. Robeco: Five lessons from the Cyprus bail-out

Chief Strategist Ronald Doeswijk,  on what can be learned from the last ten days.

There are five key lessons to be learned from the 11th hour deal that Cyprus struck with the international lenders to secure its EUR 10 billion bail-out, says Ronald Doeswijk.

1. Deal was the best of a bad bunch of solutions

First, he says, the deal is not ideal but it is the best option from a bad set of potential solutions. “In the last week, as in the whole debt crisis, there have been events where there are only bad solutions on offer,” he argues.

This “least-bad” deal is structured so that the unacceptable plan to levy depositors with savings of less than EUR 100,000 that was included in last week’s initial proposal—and which was voted down by the Cypriot parliament—has gone.

Instead, the weight of the bail-out rests on richer depositors in the country’s two main banks, with more than EUR 100,000 in their accounts, and senior bank bondholders.

These pressures mean that there are no simple solutions left for future flare-ups in the eurozone debt crisis—and such flare-ups are inevitable. “This will not be the last choice between bad solutions. And a bad solution always brings the risk of a final break up of the eurozone, either directly or indirectly. Also, politicians have not always shown great awareness of unintended consequences,” he cautions.

2. EUR 100,000 deposit guarantee repaired but doubts will linger

The second lesson is that politicians have realized that it was a mistake to threaten the eurozone-wide EUR 100,000 deposit guarantee. In the proposal that the Cypriot parliament rejected last Monday, deposits with less than EUR 100,000 were facing a 6.75% haircut.

In the new deal, the EUR 100,000 guarantee is being honored. “In that sense, you could say that things have only changed marginally in the last ten days,” says Doeswijk.

And yet. Only a week ago, Europe’s policymaker elite were prepared to plunder small savers’ deposits. That’s a difficult cat to get back in the bag. “People have been made aware that the rules may change from today to tomorrow,” says Doeswijk.

3. Contagion risks in the short term are small: bank runs unlikely in Spain & Italy

Even though Spanish and Italian savers might thus be alarmed by the planned deposit grab in Cyprus, Doeswijk is not expecting bank runs in either country. That’s Doeswijk’s third lesson. “We still think contagion risks are small in the short term,” he says. “People will see Cyprus as a special case.”

That said, he acknowledges his concern about a possible restart of the silent bank run in Spain: “it’s a key issue,” he says. In Spain, money flows out of banks recently reversed: people have been putting money in again. Now, the worry is that, prompted by Cyprus, outflows will start again.

4. Bondholders continue to be at risk

The fourth lesson is that bondholders are now more at risk. As part of the Cyprus deal, the senior unsecured debt of Laiki Bank looks set to be completely wiped out, while senior bondholders of Bank of Cyprus face a haircut. “Senior bank debt holders will bleed,” says Doeswijk. “That is good in the long term.” Why is this good? “Sometimes risk has to materialize to prevent moral hazard,” he says. “You can’t use taxpayers’ money every time.”

5. Focus to shift back to political instability in Italy

The fifth lesson concerns the next steps in the broader eurozone crisis. While Cyprus gets used to its new normal—a shattered business model, a drastically shrinking economy and higher levels of debt to GDP—Doeswijk believes that the spotlight is likely to shift away.

It is not that this deal solves Cyprus’s problems. “But we believe that if Cyprus implements what the Troika is telling it to do, it will receive another bail-out if needed,” he says. “A eurozone exit is too dangerous.”

Where will the spotlight come to rest? Doeswijk suggests Italy. “Political instability in Italy could worry financial markets,” he says. After all, there is no stable government. And fresh elections are possible within a few months. “Are the new policymakers willing to put forward enough reforms to satisfy the Germans?” he asks.

That is unlikely to be the only negative taking the spotlight away from Cyprus. The dire state of the eurozone economy will also be competing for attention. “We have to see how the economy does in the months ahead. Data from France has been very bad,” he notes.

Still, despite the flare-ups, the most likely scenario is that, with the backstop of the ECB’s OMT (outright monetary transactions) and softened austerity, politicians will gradually push through economic reform. “In those circumstances, we may be able to avoid a test of the conditionality of the OMT, which we believe to be truly conditional,” says Doeswijk

Drink Ribera. Drink Spain. Launches 2013 Road Tour in U.S.

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Ribera de Duero se va de gira por Estados Unidos
Wikimedia CommonsDrink Ribera. Drink Spain. Drink Ribera. Drink Spain. Launches 2013 Road Tour in U.S.

Drink Ribera. Drink Spain. has released their spring 2013 Road Tour calendar, including opportunities for trade and press to meet winemakers and taste current releases from over 100 D.O. Ribera del Duero wineries in Dallas, Austin, Miami, Boston, Chicago and Denver.  The Drink Ribera Road Tour will include RiberaConnect, a trade sampling platform designed to facilitate business between importers and Ribera wineries seeking representation in the United States.

This year the annual Drink Ribera Road Tour will also encompass a Guild of Sommeliers Master Class tasting series in Chicago, Houston, New York, Atlanta, Seattle and San Francisco. Led by certified Master Sommeliers, classes will include a comprehensive tasting of Ribera wines for wine professionals designed to advance education and training on the Ribera del Duero region.

The Drink Ribera Road Tour follows the success of the region’s 4th annual Grand Tasting in New York.  On February 25, 2013, Drink Ribera hosted over 120 wineries from the Ribera del Duero region of Spain, presenting their latest releases to 400 wine industry professionals and guests at the Mandarin Oriental Hotel. Exclusively for Drink Ribera guests, Pablo Alvarez, General Director of Vega Sicilia, led a rare vertical tasting including a magnum Unico 1981 and Unico Reserva Especial.

About D.O. Ribera del Duero

Ribera del Duero provides a benchmark for quality in the Spanish wine category. With an extreme climate perfectly suited for quality grape-growing and ripening, Ribera del Duero wines represent the pinnacle of Spanish winemaking and the ultimate expression of Spain’s most noble red grape: Tempranillo.  The region became a Denominación de Origen (D.O.) in 1982, and today there are more than 260 wineries producing top world-class wines. Ribera del Duero was named 2012 Wine Region of the Year in Wine Enthusiast Magazine’s annual Wine Star Awards.

To view the 2013 Drink Ribera Road Tour calendar please visit: 2013 Events Calendar.