Innovation: initial steps for fund industry players

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Recent studies continue to reinforce the empirical evidence of the positive impact of innovation on company performance. According to these studies, those companies that are committed to innovation will grow three times faster over the next five years. Companies that do not commit to innovation will tend to disappear.

 

In 1958, the 500 largest companies in the United States listed on the S&P500 remained in that index an average of 61 years. Today that period of permanence falls around 18 years, but the forecast for 2025 is close to 15 years. That means that no matter the size, even the largest companies in the world may disappear in 15 years if they do not innovate. Fund industry is not a horse of a different color.

 

In this situation, as a manager, are you leading strategies and a culture to encourage innovation in your company?

 

However, and before you get too excited about the idea of starting immediately with the innovation matter within your company, statistics show that almost 80% of new products and services fail during the six months after launch.

 

So, how can we successfully innovate considering these failure ratios? Professor Carlos Osorio view is that major problems in the company arise when the focus is more on the idea than in the challenge. According to their investigations, 75% of “great ideas” fail. Nevertheless, 99% of attempts to solve “innovation challenges” end as success. In this sense, having innovative leaders in the team will help to improve all areas of the company activity.

 

Another author, Roy Rothwell at the University of Sussex, provided an historic overview of industrial innovation management in the Western world. He described 5 generations of innovation models: Technology Push (1950-1960), Market Pull (1960-1970), Coupling of R&D and Marketing (1970-1980), Integrated Business Processes (1980- mid 1990s)and System Integration & Networking (since mid 90s onwards). Current innovative companies are associated to a diverse portfolio of partners which together create an innovation system based primarily in exchange of information and knowledge.

 

Creating this net of employees and partners with innovative capabilities can be a good way to start ensuring the growth and competitiveness of your company.

 

Alembeeks Group contributes with fresh ideas and IT solutions to a better fund industry. We are fund industry natives and we know IT.

Contact us at sales@alembeeks.com for further information about our services and tools.

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Supertanker funds and liquidity

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Dear Fund Director,

I have found this article about the liquidity risk in supertanker funds.

I think Mr. Beckett opinion is worthy to be considered when we follow up our funds and the funds where we are invested.

Taken directly from the article find interesting paragraph:

Using the AIFMD as a template we can start to ask specific due diligence questions to assess the liquidity risk of big funds such as:

  1. Outline any illiquid, non-daily priced or low volume assets held and how you manage these positions (eg direct property, unlisted stocks).
  2. What is the maximum size (capacity) of your strategy?
  3. Have you stress-tested the current portfolio, the liquidity profile of your investors or subjected the strategy to liquidity scenarios?
  4. What is the maximum percentage of the fund’s assets held by a single client and the ratio of retail to institutional clients?
  5. What has been the largest weekly and monthly outflow from your fund and what percentage of the fund did this constitute?
  6. Indicate your current liquidity ladder at normal prevailing prices – how much of the fund you can liquidate in one day, two days, seven days, 30 days, 90 days.
  7. Are there any sub-sectors where you own more than 10% of that market? Also detail the smallest market and holding (market capitalisation) you are prepared to hold.
  8. What redemption policies (eg unit cancellation, equalisation, dilution levy, swing-pricing) can you currently employ?
  9. Provide details of the liquidity of your portfolio, including the type of cash instruments held, trading liquidity of other assets and how quickly 75% of the portfolio can be traded out.
  10. Highlight and describe any holdings held currently (or previously) in the following: Gold bullion, Commodities, Exchange traded commodities, Traded endowment plans, Milk quotas, Contracts for differences, Direct property, Infrastructure, Cash held for margin requirements, Complex derivatives (eg OTC, non-vanilla Swaps, Swaptions), Unlisted securities (inc private equity, private loans).

I hope this helps.

Yours faithfully ,

The Indeep Fund Director

10 tips for efficient meetings

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Dear Fund Director,

How many times did you have the feeling that a meeting was going to nowhere?

Find below 10 easy tips to improve your meetings:

1 – Define a clear goal before the meeting. What is the matter you want to solve?

2 – Have an agenda and share it previously with all attendants.

3 –  Ask all attendants if they want to include additional points to the agenda.

4 – Try to avoid to debate about matters with no direct relation to the meeting’s goal.

5 – Manage time. Establish a clear starting and ending time.

6 – Investigate about the main topic before the meeting, so you may add value and not be an obstacle.

7 – In case you invite someone to speak about one topic, doesn’t mean this person has to have an opinion in all topic of the meeting.

8 – Allow all attendants to participate in the meeting. All opinions may count.

9 – Appoint someone as a responsible for applying the resolutions made in the meeting. Use clear deadlines.

10 – Write a report of the meeting, share it with the attendants and put in place the necessary mechanisms to follow up the decisions made.

I found this list in this site (in Spanish). However, there are thousands of websites giving good advices.

Making the right steps to have better meetings will allow us not only to improve our activity but also to feel much better.

I hope this helps.

Your faithfully,

The Indeep Fund Director.

Liquidating a fund

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Dear Fund Director,

If you are liquidating a fund which was under your mandate, you are not alone. Fund industry has its own trends and fashions. And trends and fashions have always a maturity date.

Last week we were informed about the end of the Goldman Sachs BRIC fund. The fund was swallowed up by the GS Emerging Markets Equity Fund. The underlying cause was that the BRIC acronym is not in vogue any longer but formally GS stated reasons were to “optimize” its assets and “eliminate overlapping products”.

Indeepfd - BRIC fund liquidation

(Source: Bloomberg)

This story can also happen to us. Some reasons to liquidate a fund could be:

  • The fund assets are low, we couldn’t reach our asset expectations 3 years after launch.
  • The fund assets are low, the asset class is no longer in fashion.
  • The fund performance was poor in comparison to the benchmark.
  • The fund manager was an “investment star” and decided to leave the company. Then we faced big redemption flows.
  • The fund is doing something very similar to another of our funds. In the end, we are duplicating the strategy and confusing the investors.
  • The investment strategy didn’t work as it was supposed to.

However, in all this cases please think about a nice wording when you inform the regulator and your investors. GS did it very well.

If possible, also as GS did, try to merge the fund you would like to liquidate with another company fund with a similar investment strategy and risk profile and inform properly your investors about the new fund (however, you should sportsmanslikely accept losing part of the investors during or just after the change).

Remember: 1 – Merging sounds much better than liquidating, specially in the headlines. 2 – Offering investors a solution is always better than simply kick them out. 3 – Cash is also a solution. In some cases, probably the best.

I hope this GS example helps you with your next fund “liquidation”.

Yours faithfully,

The Indeep Fund Director

 

Do Hedge Funds lose tailwind?

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Dear Fund Director,

According Preqin research, the institutional investors are less willing to invest in Hedge Funds in the coming 12 months. The respondends is a worldwide representation of institutional investors including managers of pension plans, endowments, foundations, asset management companies, insurance companies, banks and familiy offices among others.

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This is the natural response to an increasing discontent with regards to the performance achieved by this asset class during the last months, which indeed it reaches its historical peak of having fallen short of investor’s expectations.

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It is also interesting to analyse the disparity of opinion among the different strategies within the Hedge Fund class.

a3

Taking all these data into account, I would suggest to follow up during the coming months the inflows and outflows of those funds under mandate which can be following one of the less liked strategies and to improve communication and transparency with existing clients in order to ensure the Assets under Management don’t suffer.

Yours faithfully,

The Indeep Fund Director

Markets plunge: contact the fund manager

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Dear Fund Director,

The markets are plunging. It is the 4th business day in a row they are in panic. Losses in the main equity indexes are relevant. Most probably the funds with equity exposure, no matter which region, may be suffering. Probably now is a good time to know what the fund managers think about the short a mid-term markets evolution and which actions they are going to carry out. These questions are useful to gather different market views, to let know the fund managers that you are following their funds and to protect yourself in case things go extremely worse.

Remind that your role as a fund director is to monitor all areas of activity for the funds under your mandate. Moreover, to ensure that your controls are traceable can be extremely useful in case of the regulator or auditors ask you for evidence of this control.

In the meantime, find an El-Erian’s article which can give you some good arguments for your coming conversations.

sg2015082449320

Yours faithfully,

The Indeep Fund Director

Old KIIDs on the block

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Dear Fund Director,

The KIID  (Key Investor Information Document) is coming back to scene. After having their first golden age in 2010 when the Commission Regulation 583/2010 appeared implementing Directive 2009/65/EC, the banking sector is finally setting up internal procedures to provide the KIID for all investors before entering a fund.

The KIID is a pre-contractual document whose content, length and methodologies are regulated and “harmonised”. In this sense, it is important to make clear that not all KIIDs look equal but disclose the same type of information. The aim of this document is to disclose key data of the fund like past performance, costs, level of risk and main responsible entity of the fund, among others to the investors, with an appropriate language and equal methodologies.

SRRI

(Source: PricewaterhouseCoopers)

In this sense, it could be useful to be informed about some questions like:

  • How often does the Management Company update the KIIDs?
  • When was last update?
  • Were there any significant changes in costs for any of the funds under mandate?
  • Were there any changes of SRRI (Synthetic Risk Reward Indicator) in the last update?
  • Are the KIIDs prepared for each class or are there any KIIDs for more than one class?
  • In which way the Management Company ensure that investors have this pre-contractual document?
  • Is the KIID provided even in subsequent investments?
  • Is the KIID provided to retail and institutional investors?

Yours faithfully,

The Indeep Fund Director