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NEWS TICKER, Wednesday, July 29th: Moody's: Yuexiu's ratings unaffected by Guangzhou land acquisitions. Moody's Investors Service says that Yuexiu Property Company Limited's has announced acquisition of two parcels of land in Guangzhou has no immediate impact on its Baa3 issuer and senior unsecured debt rating, the (P)Baa3 senior unsecured debt rating for its MTN program, or their stable outlook. Yuexiu Property announced it had acquired interests in two joint ventures that will develop two parcels of land in the Haizhu District of Guangzhou, Guangdong Province. - Moody's: Asian rated high yield bond issuance slows in 2Q 2015. Moody's Investors Service says that Asian high yield issuance in the region fell to $2.7bn in Q2 2015, well below the $4.5 registered in Q1 2015, and was at the lowest quarterly level since Q3 2013. - The Spanish Mercado Alternativo de Renta Fija (MARF) has admitted to trading a securitisation commercial paper programme by IM Fortia 1, a Securitisation Fund formed by Intermoney Titulización, Securitisation Funds Manager. The maximum outstanding amount of the programme is €400m.

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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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