GAIM Ops Cayman 2012: The Highlights

InvestorsOperational RiskPeople MovesRegulation
30 Apr, 2012

To say that GAIM Ops Cayman offered little drama would be an understatement. In fact, the conference provided excitement even before it started with reports of a plane full of delegates being forced to make an emergency landing at Owen Roberts Airport following, as one attendee put it, “complications with the landing gear.” “There were a lot of emergency crew on the ground,” they added, although as with most conferences, the rumour mill was in full drive.  Meanwhile, those flying out of Newark had the misfortune of being caught in extreme turbulence with one seasoned jet-setter acknowledging it was “one of the roughest flights he had ever caught.”

Despite the slightly testing journeys, GAIM Ops Cayman was widely praised. Not one delegate COOConnect spoke to was negative about the four day event, which for any conference, is a first. GAIM Ops Cayman is widely considered the industry standard Op due diligence (ODD) conference. According to conference organiser Rachel Lewyn, the event attracted roughly 500 attendees, and was fairly evenly split between buy-side and vendors (although this balance was questioned by some attendees). In terms of geography, most attendees were US-based although some troopers came from as far afield as Australia and New Zealand. “A lot of the industry’s senior people were present,” commented one participant. But what were the big issues at GAIM Ops Cayman?

Regulation:  Predictably, regulation is on the minds of most delegates. With the industry facing a barrage of new rules (Form PF, AIFMD, bans on naked shorts of sovereign CDS, short-selling restrictions more broadly, mandatory OTC derivatives clearing, FATCA...etc), this should not come as a shock.  AIMA’s global chairman Todd Groome expressed his concern that the European Commission had ignored a good portion of ESMA’s guidelines on AIFMD, raising questions about how much clout ESMA will have going forward. Form PF was also touched upon with one hedge fund CCO highlighting the divisions within the alternatives community about disclosing Form PF to investors. He acknowledged that most of the information in Form PF was already available to investors and said he had no problem making a full disclosure. These words were music to investors’ ears but whether it actually materialises remains to be seen.

Enforcement: Delegates praised the calibre of regulators who participated in the conference. Representatives from the SEC and US Attorney’s Office in New York were present either in person or via video link. Given the notorious, historical caginess of regulators, delegates welcomed the open discussion. Delegates were warned regulators would aggressively pursue law breaking or non-compliance. “The division has made significant changes and we have specialised units focused on insider trading, plus the technology is there to spot suspicious activity,” said one enforcer. Another enforcer urged managers not to listen exclusively to the media, who seem to focus primarily, he said, on expert networks. He added regulators’ remits extended beyond just expert networks. However, he said Federal Agents were sensitive to managers’ reputations, and will only use a search warrant in serious cases. Interestingly, the same enforcer highlighted there was a “climate of fear” in the sector and told the audience he was amazed at how often people involved in the industry had volunteered to work with Federal Agencies to tackle criminality. “It’s amazing how many calls we are getting from individuals in financial institutions. We have people offering to wear wires. It is amazing how many financial professionals want to become junior G-men to weed out corruption,” he said, to much nervous laughter in the audience. Ultimately, a culture of compliance is all but essential to minimise that unwelcome knock on the door from enforcement agents.

Corporate governance: A divisive topic to say the least. One sparring panel featured     representatives from the USS, a UK pension plan and vocal campaigner for better hedge fund corporate governance standards, and DMS, a professional services firm that has faced significant criticism about the number of boards its directors sit on.  Keynote speaker Peter Koffler, chief compliance officer and general counsel at Blackstone Alternative Asset Management, also highlighted corporate governance as an area which needed improvement and change. Several attendees COOConnect spoke to said corporate governance reform was an inevitable change, and believed firms such as DMS, would ultimately have to evolve and curb the number of boards their directors sit on – although one or two conceded this was not going to occur in the near-term. Cayman Islands Monetary Authority (CIMA) regulator Yolanda McCoy highlighted the jurisdiction was considering new corporate governance standards. Investors broadly welcomed this albeit with a pinch of salt. One investor said he doubted an online database would materialise given professional services’ firms opposition to the proposal. The USS’s Daniel Summerfield said self-regulation by industry was essential otherwise external regulators could impose extra-territorial rules imposing hard and fast caps on the number of boards directors sit on – a development that would be unwelcome by everyone.

Developments in operational due diligence (ODD): Unsurprisingly, operational due diligence was a major aspect of the conference and as anticipated, there were disagreements. One hedge fund CCO complained investors did not put enough thought and research when preparing for ODD thereby making the process inefficient and time consuming. The CCO highlighted investors would be better equipped to speak to hedge funds’ service providers prior to ODD meetings. This charge was rebuked by an investor, who said research was a fundamental aspect of ODD.  There was also debate as to whether outsourcing/co-sourcing ODD was acceptable. One panellist criticised funds of funds which use external providers to conduct ODD. Given that many FoHFs have to justify their worth post-2008 by making ODD central to their offering, outsourcing operations was a strange route to take, argued the panellist. Adrian Sales of Albourne Partners countered this. He said there are a lot of small FoHFs which don’t have the adequate resources to sift through the hedge fund investment universe –using consultants to gain access to more managers was therefore a valid tool, he commented.

GAIM Ops Cayman will take place next year between April 21 and 24, 2013.