GAIM Monaco 2012: The Highlights
Despite the decent weather in Monte Carlo, the content of the panels at GAIM 2012 was overwhelmingly gloomy. Held at the Meridien Beach Plaza in Monte Carlo – a much downsized venue from the Grimaldi (2011’s venue), attendance was considerably lower than previous events indicating a sign of the times. According to official figures, over 500 people were signed up for the event – although some crude, unofficial calculations put that number between 250 and 300. Delegate numbers were significantly lower than their pre-crisis levels. But what were the big issues and talking points at GAIM?
Gloom and doom
Never has a conference started on such a depressing note as GAIM Monaco 2012. Jamil Baz, chief investment strategist at GLG Partners and Niall Ferguson, the Lawrence A Tisch professor of history at Harvard University and author, outlined their pessimistic predictions for the world going forward. Baz argued the “crisis has not even started” adding sovereign debt to GDP ratio was at unsustainable levels. He said deleveraging would be a decades long process which would lead to severe instability in all affected countries. “I would consider ourselves very lucky if we had Japan all over again,” he said forebodingly, before acknowledging central bank quantitative easing was doomed to fail – “LTRO is a Ponzi scheme between failed banks and bankrupt governments.” Fergusson, never one of life’s optimists, said the west and Japan had reached a “stationary state,” a phrase coined by Adam Smith describing countries which had ceased to grow. For good measure, Fergusson went on to dismiss the Kantian concept of perpetual peace arguing future wars were an inevitability in the Middle East and sub-Saharan Africa.
No conference would be complete without a panel discussing the eurozone crisis and GAIM Monaco was not the exception. Broadly, delegates were apprehensive about events unfolding in the eurozone. The majority of delegates (60%) voted a Grexit would happen before 2014 although a surprising number still reckoned the embattled Greece would remain in the eurozone. Most delegates also believed Spain would remain in the eurozone. Senior execs at Fulcrum Asset Management and QFS Asset Management said they were betting Germany would bail out indebted sovereigns as defaults would seriously impact the German economy. However, they added any bail-out either by Germany or Brussels would be contingent on major structural reforms. The Greek election also provided a “tinge of optimism” said Gavyn Davies, chairman of Fulcrum, although a lot of delegates felt a Greek default was a forgone conclusion irrespective of its political leadership.
Lack of service providers
One of the biggest criticisms fund managers and investors had of GAIM in years gone by was the sheer volume of service providers attending. In fact, one of the biggest complaints from service providers in 2011 was also the sheer volume of service providers present. GAIM organisers have recognised this and said they imposed caps on service providers, which was reflected in the lack of stands and attendees. Certainly, many of the familiar faces on the conference scene were notable for their absence. The proportion of hedge funds and investors was much higher than before – something that was welcomed by the overwhelming majority of delegates. However, the occasional cynic at the conference reckoned the lack of service providers was down to their reluctance to pay. Conferences like GAIM are not cheap to exhibit at and given all of the market turmoil, marketing at these events might be considered an unnecessary expenditure.
Taleb, principal of Universa investments and author of “The Black Swan” argued against investing in medium-risk strategies and said it was better if managers focus on extremes (IE very low risk products and very high risk products) or barbells as he called this. He also said complex systems are vulnerable to model errors and argued experts treated the economy as something mechanical that requires maintenance rather than something organic that can self-heal. He also derided economists. Several attendees said Taleb issued some blunt and brutal put downs to some audience questions. One attendee also said Taleb’s delivery was very academic replete with graphs and complex equations, and at times incomprehensible. Another criticised the concept of tail-risk hedging, adding it was expensive and highlighted a growing number of banks were reluctant to sell long dated options, particularly as the Volker Rule demands banks cut their risk exposures. The delegate also said long-dated options gave investors and hedge funds a false sense of security, particularly if the counterparty selling the long-dated options goes bust – a not unlikely scenario in a black swan market event.
AIFMD was on a lot of managers’ minds. The latest draft due to be voted on in July has been leaked and most delegates who had bothered to read it acknowledged very little has changed. Depositary liability remains a concern for managers, as do leverage limits. Hedge funds will be required to adopt self-imposed leverage limits although one panellist said the European Commission’s proposed methodology on calculating leverage (which according to Jiri Krol, AIMA’s head of regulatory affairs, entails adding the balance sheet and notional underlying derivatives positions, and then dividing by the net asset value) could lead to hedge funds appearing more levered than they actually are. The methodology was derided as simplistic and Krol urged ESMA to adopt a more sophisticated approach of calculating leverage. There are also concerns regulators could step in and impose mandatory leverage caps on hedge funds they view as being systemically important or during times of crisis. Thomas Deinet of the Hedge Funds Standard Board warned this would be counterintuitive and could exacerbate market stress by forcing managers to fire-sell assets at distressed prices.
And finally....The Weather
For those in London where summer seems to be non-existent, Monaco did offer some sun, which went down well, particularly among the hedge fund WAGS in attendance.