Latest / Bloomberg Intelligence / Hedgemark's Lapkin on Challenges to Hedge Fund Investing(Audio)

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Hedgemark's Lapkin on Challenges to Hedge Fund Investing(Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York Bloomberg eleven, Rio to Washington,
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  Speaker 1: City's employees retirement system, fifty one point two billion dollars
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  Speaker 1: of it is looking at to exit its hedge fund positions.
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  Speaker 1: We're gonna find that is this a trend in the industry.
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  Speaker 1: We'll be speaking with an expert having to do with
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  Speaker 1: hedge funds. Andrew Lapkin is the chief executive of Hedge
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  Speaker 1: Mark International. And of course we are continuing our very
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  Speaker 1: From the Bloomberg Newsroom, I'm Alex Steele, Catherine, thank you,
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  Speaker 1: and now recapping the Dow Industrial leverage up nineteen points
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  Speaker 1: at seventeen thousand, five hundred twenty, SMP five foundered down
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  Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
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  Speaker 1: Fox on Bloomberg Ring. Alternative investments an increasingly important topic
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  Speaker 1: for investors, for money managers, and certainly for the firms
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  Speaker 1: that service these very important groups in the financial services industry.
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  Speaker 1: Hedge funds have been hot, But are they so hot?
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  Speaker 1: Now as many big investors pull away from using hedge
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  Speaker 1: funds as one of those very important all investments. This
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  Speaker 1: is a topic being discussed today here at DEB Mountain,
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  Speaker 1: the DEB Martin Mountain, rots Carlton, about thirty miles from Tucson, Arizona,
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  Speaker 1: at the Power of Big Ideas Invested sixteen. It's a
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  Speaker 1: b n Y Melon client conference and a person who
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  Speaker 1: has uh speaking on one of the panels today is
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  Speaker 1: joining us now, and that is Andrew Lapkin, CEO of
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  Speaker 1: Hedge Mark International, to take a look at this important question. Andrew, welcome, well,
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  Speaker 1: thank you, it's great to be here. Kathy, So hedge funds,
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  Speaker 1: It's interesting that people are this question is is people
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  Speaker 1: are looking at going into hedge funds at a time
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  Speaker 1: when we see a lot of headlines. In fact, pim
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  Speaker 1: PIM just mentioned one investors are leaving hedge funds. In April,
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  Speaker 1: the New York City Employee Retirement System voted to liquid
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  Speaker 1: eight their hedge funds, and they're following Cowper's move a
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  Speaker 1: couple of years ago. What's going on? Uh So, hedge
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  Speaker 1: funds certainly are getting a lot of attention. In many
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  Speaker 1: cases a little bit more of that negative you know, focus,
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  Speaker 1: and some of that is it makes for good headlines,
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  Speaker 1: so obviously people kind of easy to poke at. But
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  Speaker 1: behind it all really are a few real issues, and
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  Speaker 1: it starts with the high fees that typically hedge funds
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  Speaker 1: have a fee structure where they're taking often two percent
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  Speaker 1: of the assets under management plus an additional of the profits,
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  Speaker 1: and so that works out to be you know, quite
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  Speaker 1: lucrative for the managers. To the managers typically give up
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  Speaker 1: almost no transparency on their portfolios, so investors really don't
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  Speaker 1: know what they're investing in. They get very limited information.
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  Speaker 1: And then, uh importantly, the hedge fund manager really has
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  Speaker 1: full control, so all the trading decisions, the what they trade,
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  Speaker 1: the markets, how much leverage, whether what instruments they use
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  Speaker 1: as well, and then you know, finally they really control
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  Speaker 1: even the assets, whether they go back to investors. We've
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  Speaker 1: seen a number of funds do what's called putting up
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  Speaker 1: their gates and so investors asked for their assets back
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  Speaker 1: and the managers say, you know, no, And so those
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  Speaker 1: issues are quite real and that's really what's driving a
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  Speaker 1: lot of the headlines. You know, I keep thinking hedge funds,
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  Speaker 1: and it's like a hedge fund for everything and every everyone. Um,
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  Speaker 1: do you happen to know where the two and twenty
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  Speaker 1: came from? How does someone decide that that was going
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  Speaker 1: to be the industry standard? Yeah, I mean it dates
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  Speaker 1: you know, way back to UH to some of their
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  Speaker 1: you know, earliest funds and a lot of it. Really,
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  Speaker 1: when you talk about hedge funds, it really is a
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  Speaker 1: bad name because you're you're grouping now disparaged strategies all
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  Speaker 1: under one category. And really the definition of hedge fund
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  Speaker 1: is more appropriate to really say that it's a structure.
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  Speaker 1: It's a structure that that the manager controls, and one
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  Speaker 1: that typically pays a management fee and a performance fee.
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  Speaker 1: And so, you know, one of the big issues is
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  Speaker 1: to say that equity long short, that merger are distressed
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  Speaker 1: at credit strategies are all the same, they're all bad
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  Speaker 1: for an investor really is sort of a false, you
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  Speaker 1: know statement in that regard and leading to part of
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  Speaker 1: the problem why you're seeing some of the negative of
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  Speaker 1: focus getting grouped too high. What are dedicated manager accounts. So,
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  Speaker 1: you know, one of the things that we've seen is
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  Speaker 1: while New York City Cowper's, a few big investors have said, hey,
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  Speaker 1: I'm just gonna get out of the space that that
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  Speaker 1: Often that's a little bit of a knee jerk reaction,
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  Speaker 1: a little bit more of a how do I address
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  Speaker 1: the political you know heat, But it doesn't hit it
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  Speaker 1: at the issues. And so for some other big investors,
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  Speaker 1: what they've done is they say, the problem is not
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  Speaker 1: with the hedge fund manager. It's not that these strategies
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  Speaker 1: don't add value to the portfolio, it's not that they're
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  Speaker 1: they're talented stock selectors. It's that the structure is really broken.
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  Speaker 1: And so what's evolved in the marketplace is a structure
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  Speaker 1: called a dedicated manage account. And what that does is
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  Speaker 1: it allows the hedge fund investor to basically have their
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  Speaker 1: own fund. Uh. And in this case, the manager's role
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  Speaker 1: becomes very limited. They're really just trading the portfolio. And
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  Speaker 1: so in the dedicated manage account, it's the client who
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  Speaker 1: now controls the assets, so they control the cash and security,
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  Speaker 1: so the manager can't run off with the money. So
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  Speaker 1: that's obviously a key piece. UH. It means that the
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  Speaker 1: investor can actually negotiate a different feast ructures, so you
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  Speaker 1: don't have to just pay the two in twenty. You
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  Speaker 1: can actually negotiate a customer structure in some cases no
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  Speaker 1: performance fees, in other cases multi year lookback. So you
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  Speaker 1: get better alignment with the manager and the investor in
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  Speaker 1: terms of that strategy. UH. And importantly the ability to
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  Speaker 1: negotiate investment guidelines. And so now it's not just what
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  Speaker 1: the manager does, it's the investor can have an influence
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  Speaker 1: in terms of the strategy that's important for their overall
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  Speaker 1: you know, portfolio, their overall pension plan. Andrew explain how
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  Speaker 1: hedge Mark International, which is a B and y Melon affiliate,
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  Speaker 1: how that plays into this whole conversation of risk management,
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  Speaker 1: hedge funds and all. Really, I would say, rather than
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  Speaker 1: just hedge funds, alternative investments, the non traditional stock bomb
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  Speaker 1: cash sure. So you know, B and Y Melon has
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  Speaker 1: made made a big move to really help their core
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  Speaker 1: institutional client base address the knees around alternative investing in
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  Speaker 1: both real estate, UH, venture capital and hedge funds. UH
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  Speaker 1: specifically with funds. Hedge Mark was part of that strategy.
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  Speaker 1: They acquire the company two years ago. And hedge Mark
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  Speaker 1: is really about helping people build and operate their own private,
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  Speaker 1: dedicated manage account platforms. So in the past investors sometimes
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  Speaker 1: looked at manage accounts being a solution to some of
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  Speaker 1: these issues of facing hedge fund investing. The problem is
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  Speaker 1: that to implement it was very difficult. Pension funds would
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  Speaker 1: have to go out and hire staff around legal and
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  Speaker 1: structuring expertise, accounts and operation experts. And so these are
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  Speaker 1: really areas that are the strength of being y Melon
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  Speaker 1: and so it allows investors really to outsource UH those
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  Speaker 1: non core aspects to someone like the bank. So it's
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  Speaker 1: like a turn key operation exactly. So the investor can
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  Speaker 1: still focus on picking the hedge fund, negotiating the key terms,
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  Speaker 1: but then the operating of all of this UH is
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  Speaker 1: done by the band. Benny Lapkin, thank you so much.
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  Speaker 1: Thank you very much. Andrew Lapkin, Chief Executive Hedge Mark
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  Speaker 1: International ABEAT and why Melon affiliate. You're listening to taking
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