Thursday 28th May 2015
NEWS TICKER: THURSDAY, MAY 28TH: A deal struck by MEPs and Council of Ministers negotiators in the small hours of Thursday morning means the architecture of the Juncker plan to unlock €315bn public and private investments in the real economy in 2015-2017 can now be put to a European Parliament vote on June 24th and the investment programme can kick off in the summer. Parliament’s negotiators scaled back cuts in the EU’s “Horizon2020” research and innovation programme and Connecting Europe Facility (CEF – to link up Europe’s energy, transport and digital networks). They also ensured that the plan creates a stable financing mechanism to bridge the investment gap in Europe, by clarifying the investment guarantee fund’s governance structure and making it more accountable to representatives of EU citizens – Jamyra Gallmon, accused of stabbing DLA Piper associate David Messerschmitt to death in a robbery gone wrong, pleaded guilty to murder today in Washington, DC court, after reaching a plea deal with prosecutors - – European banking and financial market associations have been rushing to comment on Tuesday night’s vote in the European Parliament’s Economic and Monetary Affairs Committee (ECON), which was rejected by 30 votes to 29, claiming they remain deeply concerned over the EU Banking Structural Reform proposal (BSR) that seeks to break up the largest European banks. The outcome of the ECON vote shows that there is no consensus on what is right for big universal banks in Europe. Policy makers suggest that the BSR proposal could lead to a loss in European investment capacity equal to 5%, representing a decline of almost €100bn in capital expenditure on the long term; however there does not seem to be any consolidated document that might form the basis of consistent debate as a European Parliament spokesperson confirms that the original proposal has had so many amendments that it scarcely reflects the original thinking behind the document. Given that the vote is defeated, the EP will not consider re-opening the debate until June 11th this year, when the Parliament will decide on the requirements for either further amendments or complete redrafting, or even abandonment of the proposal - )-- Murex, the leading provider of integrated trading, risk management and processing solutions, says UniCredit, which has the largest presence of banks in Central and Eastern Europe, has gone live on Murex' MX.3 for UniCredit Bank Austria and eight other Central Eastern Europe banks - The interim financial report of Gefinor S.A. (ISIN LU 0010016714) for the period ended March 31st is available on the company website at www.gefinor.com from May 28th (today) - The Securities and Exchange Commission today announced that the next meeting of its Advisory Committee on Small and Emerging Companies will focus on public company disclosure effectiveness, intrastate crowdfunding, venture exchanges, and treatment of finders.“The agenda reflects the important scope of the advisory committee’s mandate,” says SEC Chair Mary Jo White. “Topics I am particularly interested in are the advisory committee’s views on disclosure effectiveness and initiatives that will inform our capital formation efforts.” At its upcoming meeting on June 3rd, the advisory committee also is expected to vote on a recommendation to the Commission regarding the “Section 4(a)(1½) exemption” sometimes used by shareholders to resell privately issued securities. This topic was initially discussed at the committee’s March 4 meeting.The meeting will be held at the SEC’s headquarters at 100 F Street, NE, Washington, DC, and is open to the public. It also will be webcast live on the SEC’s website, www.sec.gov, and will be archived on the website for later viewing.

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Regulatory Update

Positioning your firm with investors

Wednesday, 06 June 2012 Written by 
Positioning your firm with investors The evidence keeps mounting that operational risks can lead to poor returns on investment and even cause a firm’s failure. A new study to this effect has just been published in the Journal of Financial Economics (February 2012, Trust and Delegation by Stephen Brown et al.). Based on data from 444 hedge funds’ due diligence reports from 2003 to 2008, Brown and his team conclude that “high operational risk can potentially destroy investor value.” They write, “operational risk as we define it leads to direct and indirect losses that can be measured in terms of diminished performance. In extreme circumstances, operational failures can lead to fund failure.” http://www.ftseglobalmarkets.com/

The evidence keeps mounting that operational risks can lead to poor returns on investment and even cause a firm’s failure. A new study to this effect has just been published in the Journal of Financial Economics (February 2012, Trust and Delegation by Stephen Brown et al.). Based on data from 444 hedge funds’ due diligence reports from 2003 to 2008, Brown and his team conclude that “high operational risk can potentially destroy investor value.” They write, “operational risk as we define it leads to direct and indirect losses that can be measured in terms of diminished performance. In extreme circumstances, operational failures can lead to fund failure.”

Interestingly, during the pre-financial crisis time period reviewed in the study, there appears to have been no correlation between investor behavior and an awareness of operational risk.  However, in light of recent high-visibility blow-ups reflecting inadequate internal processes investor behavior has changed considerably. 

In fact, a recent study by Citi Prime Finance focusing on more current investor behavior concludes that day one and early stage allocators to hedge funds are acutely aware of operational risk. In that study, the investors’ top three concerns – track record, previous experience working together and investment team stability – were followed by a concern with the fund's operational infrastructure. (See Day One and Early Stage Investor Allocations to Hedge Funds, Citi Prime Finance, February 2012.)  The study notes, “[t]here is growing sentiment that managers need to be more ‘institutional’ at launch to reflect a changing investor base.”



Given the results of these studies, an important way to set your firm apart from the rest is to highlight the quality of your firm’s governance structure and its related business functions and operational processes. Despite the concerns of potential clients, many managers mistakenly shy away from discussing operational risks, including compliance and regulatory issues. Instead, this calls for a proactive approach that differentiates the manager from the pack and allays concerns, which would otherwise delay an initial allocation, reduce its size, or prevent it altogether. Address this in an early page in your pitchbook. From then on, an investor should be primed to focus on your performance, your unique strategy, and your investment personnel. 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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