1 Newsletter - April 2018 In this month’s newsletter: New Stakeholders SBAI’s Initiative on Culture and Diversity Latest regulatory developments: fees and expenses Open Protocol: upcoming changes to OP industry classification Upcoming events SBAI is hiring New Stakeholders We are delighted to welcome new additions to the SBAI family Investor Chapter Alberta Investment Management Corporation (Canada) Signatory Steadfast Capital Management (USA) SBAI’s Initiative on Culture and Diversity The topic of culture and diversity has risen to the top of Board and management agendas in every sector, and financial regulators are exploring the linkages between culture (or the lack thereof) and compliance failures. This month, the SBAI launched a new series of private breakfast sessions with SBAI stakeholders under the leadership of Dame Amelia Fawcett, Chairman of the SBAI. These sessions will explore this complex and far- reaching subject with a focus on critical business and strategic issues, as well as best practices (what works, what doesn't and why). The first breakfast was held with the Chairmen and CEOs of a number of signatories, as well as senior investor representatives. These are some of the questions and issues that were discussed: Why do we care about corporate culture? Reasons often given include that it helps firms improve performance, helps individuals determine what is right/wrong, reduces operational/compliance/reputational risk, aligns staff with the firm’s objectives, is important for recruitment/staff retention, facilitates resolution of controversies and empowers staff How to develop good culture? Suggestions have included tone from the top/leadership, incentive systems and sense of ownership/alignment with end-investors, long-term versus short-term (quarter to quarter, year to year) focus, governance structures/clear allocation of roles and responsibilities, hiring the right people, clear formulation of firm strategy and relentless communication with staff
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Newsletter - April 2018
In this month’s newsletter:
New Stakeholders
SBAI’s Initiative on Culture and Diversity
Latest regulatory developments: fees and expenses
Open Protocol: upcoming changes to OP industry classification Upcoming events SBAI is hiring
New Stakeholders
We are delighted to welcome new additions to the SBAI family
Investor Chapter
Alberta Investment Management Corporation (Canada)
Signatory
Steadfast Capital Management (USA)
SBAI’s Initiative on Culture and Diversity
The topic of culture and diversity has risen to the top of Board and management agendas in every sector, and financial regulators are exploring the linkages between culture (or the lack thereof) and compliance failures. This month, the SBAI launched a new series of private breakfast sessions with SBAI stakeholders under the leadership of Dame Amelia Fawcett, Chairman of the SBAI. These sessions will explore this complex and far-reaching subject with a focus on critical business and strategic issues, as well as best practices (what works, what doesn't and why). The first breakfast was held with the Chairmen and CEOs of a number of signatories, as well as senior investor representatives. These are some of the questions and issues that were discussed:
Why do we care about corporate culture? Reasons often given include that it helps firms improve performance, helps individuals determine what is right/wrong, reduces operational/compliance/reputational risk, aligns staff with the firm’s objectives, is important for recruitment/staff retention, facilitates resolution of controversies and empowers staff
How to develop good culture? Suggestions have included tone from the top/leadership, incentive systems and sense of ownership/alignment with end-investors, long-term versus short-term (quarter to quarter, year to year) focus, governance structures/clear allocation of roles and responsibilities, hiring the right people, clear formulation of firm strategy and relentless communication with staff
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What role does diversity (in its broadest sense, not just gender) play? Helps prevent group think—helps business identify opportunities others will miss and avoid new threats to business model, broadens talent pool and facilitates engagement with key stakeholders (investors and employees)
How do the size, ownership structure and ambition of the firm influence its culture? Founder perspective: introducing broader decision-making structures as firms grow but without giving up control (?); how to lead cultural change (or preserve culture) as firms expand
What are the key challenges? For example, how to achieve diversity in light of skewed talent markets (for example, 71% of STEM (science, technology, engineering and mathematics) graduates are male), “re-entry” for people taking extended leave
The topic of culture and diversity also will be explored during one of the panel discussions at the SBAI Annual North American Stakeholder Forum in New York on 30 May 2018 (see Upcoming Events below).
Latest regulatory developments: fees and expenses
This month the US SEC’s Office of Compliance Inspections and Examinations (“OCIE”) published its latest risk alert on the most frequent advisory fee and expense compliance issues identified in deficiency letters sent to SEC-registered investment advisers. The risk alert cited six types of deficiencies, including fee billing on incorrect account valuations, billing fees in advance with improper frequency, applying incorrect fee rates, omitting rebates/applying discounts incorrectly, disclosure issues and advisor expense misallocations. The topic of fees and expenses also is covered by the Alternative Investment Standards. The Standards (Standards 2.1-2.6) focus on the commercial policy, which relates to disclosure of the commercial terms on which the manager has agreed to manage the fund and on which investors will invest. It is recommended that fees and expenses, amongst other things, should be disclosed in the fund’s offering documents and the audited financial statements. Specifically, this disclosure should include the methodology used to calculate performance fees, details of any other remuneration received by the manager related to the fund management, details of the nature of any expenses which may be payable or reimbursed by the fund to the manager, as well as a description of other material fees, costs, and charges which will be payable by the fund. The Standards also recommend that changes to the fees and expenses payable by the fund to the manager which the fund governing body considers to be materially adverse to investors should not be effected without either (a) obtaining investor consent or (b) providing advance notice sufficient for investors to redeem without penalty. In September 2017, the SBAI continued exploring this topic and published the Standardised Total Expense Ratio (“STER”). The STER calculates a single, standardised expense ratio to facilitate better understanding, comparison and monitoring of fees and expenses across alternative investment funds. A unique and important feature of the STER methodology is that it includes the costs of research bundled with dealing commissions (often referred to as “soft dollared research costs”). The SBAI encourages managers to review their arrangements for charging fees and expenses to funds to ensure correct handling. We also encourage managers to adopt the STER and report it to investors to facilitate better understanding and ongoing monitoring of fees and expenses charged to funds.
Open Protocol: upcoming changes to OP industry classification
The SBAI Open Protocol (OP) and Insurance OP risk reporting templates standardise the collection and representation to investors of risk information of alternative investment funds. OP uses the Global Industry Classification Standard (GICS), a widely accepted framework developed by MSCI and Standards & Poors to organise industry sectors in a four-tiered hierarchical classification system.
In the coming months, there will be a number of revisions to the GICS structure, including major changes within the Telecommunication Services Sector. GICS will broaden the sector and rename it—Communication Services, Media & Entertainment will be added to the sector, as well as certain companies currently classified under Information Technology. The changes will be implemented after close of business on 28 September 2018. More details on the GICS revisions are available here. To ensure that the OP templates will be consistent with GICS going forward, the OP Working Group will prepare updated templates in the coming months, which then will be made available on the Open Protocol section of the SBAI Toolbox.
Upcoming events
9 May, Singapore: SBAI Institutional Investor Roundtable Speakers include senior representatives from Albourne Partners, Caisse de dépôt et placement du Québec Asia Pacific, Capital Fund Management, Dymon Asia Capital, Fullerton Fund Management Company, Government of Singapore Investment Corporation Pte Ltd, Jasper Capital International and PAAMCO Asia.
10 May, Hong Kong: SBAI Big Data and Artificial Intelligence Roundtable Speakers include senior representatives from Albourne Partners, Canada Pension Plan Investment Board, GCM Grosvenor, Herbert Smith Freehills, Jasper Capital International Ltd., Man Group Asia, Northwest Investment Management, Springs Capital and the Securities & Futures Commission.
30 May, New York: SBAI Annual North American Stakeholder Forum Speakers include senior representatives from Alberta Investment Management Corporation, Government of Singapore Investment Corporation Pte Ltd, Man Group, OMERS, Orchard Global Capital Group, and The Rock Creek Group. The event will also include a regulatory panel with the participation of senior speakers from US Attorneys’ Office, Eastern District of New York and the Regional Office, U.S. SEC’s OCIE (New York Office).
19-20 June, London: EuroHedge Summit 2018 (third-party conference) Keynote remarks by Dame Amelia Fawcett, Chairman of SBAI; SBAI Allocator Panel on Responsible Investment/ESG with speakers from Church Commissioners for England, Trium Capital and Varma Mutual Pension Insurance Company.
The full event schedule is available here. More events will be announced in due course.
SBAI is hiring The SBAI is looking to add a staff member in the US (New York area) to support the SBAI’s efforts in North America, including the work of the SBAI North American Committee. The candidate must have 7 + years of relevant experience in alternative investment management, investment banking and/or investment consulting with clear understanding of the alternative investment industry (including regulatory environment). The chosen candidate will be based in New York/Connecticut and will be expected to travel within North America. A detailed job description is available upon request at [email protected].
APPENDIX Alberta Investment Management Corporation
Alberta Investment Management Corporation, AIMCo, is one of Canada’s largest and most diversified institutional investment managers with more than $100 billion of assets under management. AIMCo is responsible for the investments of 32 pension, endowment and government funds in Alberta, placing investments on their behalf across all asset classes and markets to maximize return on risk. AIMCo is a Crown corporation of the Province of Alberta.
Steadfast Capital Management
Steadfast Capital Management is a New York City-based hedge fund founded in 1997 by Robert S. Pitts, Jr., who served for seven years in various capacities at Tiger Management, including Managing Director of financial services investments. Since inception, Steadfast has grown to a 50-person team which includes 18 investment research professionals who oversee long-short and long-only equity portfolios of approximately $6 billion. Using fundamental analysis and a bottom-up approach, Steadfast targets long positions where it identifies potential to double in three years (the “Steadfast Three Year Double”) and short positions with potential to decline by 50% in eighteen months. Steadfast seeks 4% unlevered alpha on both longs and shorts. Steadfast has a highly institutionalized investor base, with over two-thirds of hedge fund commitments in three-year or longer lock ups. Steadfast launched an equity long-only fund, Steadfast Long Capital, L.P. on January 1, 2017.
