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Big Data for a Small World: SMEIoT

smeiotIoT

The world is a great big database and algorithmic wizards and mad data scientists are burning the midnight oil to mine the perplexing infinities of ubiquitous data points.  Their goal is to put data to use to facilitate better governance, initiate pinpoint marketing campaigns, pursue revelatory academic research and improve the quality of service public agencies deliver to protect and serve communities. The convergence of Big Data, Cloud Computing and the Internet of Things (IoT) make this possible.

The earth is the mother of all relational databases.  It’s six billion inhabitants track many billions of real time digital footprints across the face of the globe each and every day.  Some footprints are readily apparent and easy to see.  Facebook likes, credit card transactions, name and address lists, urgent Tweets and public records sparkle like alluvial diamonds; all easily plucked by data aggregators and sold to product marketers at astonishing profit margins.  Other data points are less apparent, hidden or derived in the incessant hum of the ever listening, ever recording global cybersphere.   These are the digital touch points we knowingly and unknowingly create with our interactions with the world wide web and the machines that live there.

It is estimated that there is over 20 billion smart machines that are fully integrated into our lives.  These machines stay busy creating digital footprints; adding quantitative context to the quality of the human condition.  EZ Passes, RFID tags, cell phone records, location tracking, energy meters, odometers, auto dashboard idiot lights, self diagnostic fault tolerant machines, industrial process controls, seismographic, air and water quality apparatuses and the streaming CBOT digital blips flash the milliseconds of a day in the life of John Q. Public.  Most sentient beings pay little notice, failing to consider that someone somewhere is planting the imprints of our daily lives in mammoth disk farms.  The webmasters, data engineers and information scientists are collecting, collating, aggregating, scoring and analyzing these rich gardens of data to harvest an accurate psychographic portrait of modernity.

The IoT is the term coined to describe the new digital landscape we inhabit.  The ubiquitous nature of the internet, the continued rationalization of the digital economy into the fabric of society and the absolute dependency of daily life upon it, require deep consideration how it impacts civil liberties, governance, cultural vibrancy and economic well being.

The IoT is the next step in the development of the digital economy. By 2025 it is estimated that IoT will drive $6 Trillion in global economic activity.  This anoints data and information as the loam of the modern global economy; no less significant than the arrival of discrete manufacturing at the dawn of industrial capitalism.

The time may come when a case may be made that user generated data is a commodity and should be considered a public domain natural resource; but today it is the province of digirati  shamans entrusted to interpret the Rosetta Stones, gleaning deep understanding of the current reality while deriving high probability predictive futures.  IoT is one of the prevailing drivers of global social development.


SME

There is another critical economic and socio-political driver of the global economy.  Small Mid-Sized Enterprises (SME) are the cornerstone of job creation in developed economies.  They form the bedrock of subsistence and economic activity in lesser developed countries (LDC).  They are the dynamic element of capitalism.  SME led by courageous risk takers are the spearhead of capital formation initiatives.  Politicians, bureaucrats and business pundits extol their entrepreneurial zeal and hope to channel their youthful energy in service to local and national political aspirations.  The establishment of SME is a critical macroeconomic indicator of a country’s economic health and the wellspring of social wealth creation.

The World Bank/ IFC estimates that over 130 million registered SME inhabit the global economy. The definition of an SME varies by country. Generally an SME and MSME (Micro Small Mid Sized Enterprises)  are defined by two measures, number of employees or annual sales.  Micro enterprises are defined as employing less than 9 employees, small up to 100 employees and medium sized enterprises anywhere from 200 to 500 employees.  Defining SMEs by sales scale in a similar fashion.

Every year millions of startup businesses replace the millions that have closed.  The world’s largest economy United States boasts over 30 million SME and every year over one million  small businesses close.  The EU and OECD countries report similar statistics of the preponderance of SME and numbers of business closures.

The SME is a dynamic non homogeneous business segment.  It is highly diverse in character, culture and business model heavily colored by local influence and custom. SME is overly sensitive to macroeconomic risk factors and market cyclicality.  Risk is magnified in the SME franchise due to high concentration of risk factors.  Over reliance on a limited set of key clients or suppliers, product obsolescence, competitive pressures, force majeure events, key employee risk, change management and credit channel dependencies are glaring risk factors magnified by business scale and market geographics.

In the United States, during the banking crisis the Federal Reserve was criticized for pursuing policies that favored large banking and capital market participants while largely ignoring SME. To mitigate contagion risk, The Federal Reserve  quickly acted to pump liquidity into the banking sector to buttress the capital structure of SIFI (Systemically Important Financial Institutions). It was thought that a collateral benefit would be the stimulation of SME lending.  This never occurred as SBA backed loans nosedived. Former Treasury Secretary Timothy Geithner implemented the TARP and TALF programs to further strengthen the capital base of distressed banks as former Fed Chairman  Ben Bernanke pursued Quantitative Easing to transfer troubled mortgage backed securities onto Uncle Sams balance sheet to relieve financial institutions  of these troubled assets. Some may argue that President Obama’s The American Recovery and Reinvestment Act of 2009 (ARRA)  helped the SME sector.  The $800 billion stimulus was one third tax cuts, one third cash infusion to local governments and one third capital expenditures aimed at shovel ready infrastructure improvement projects.  The scale of the ARRA was miniscule as compared to support rendered to banks and did little to halt the deteriorating macroeconomic conditions of the collapsing housing market, ballooning unemployment and rising energy prices severely stressing SME.

The EU offered no better.  As the PIGS (Portugal, Ireland, Greece, Spain) economies collapsed the European Central Bank forced draconian austerity measures on national government expenditures undermining key SME market sensitivities.  On both sides of the Atlantic, the perception of a bifurcated central banking policy that favored TBTF Wall Street over the needs of  an atomized SME segment flourished.  The wedge between the speculative economy of Wall Street and the real economy on Main Street remains a festering wound.

In contrast to the approach of western central bankers, Asian Tigers, particularly Singapore have created a highly  supportive environment for the incubation and development of SME. Banks offer comprehensive portfolios of financial products and SME advisory services. Government legislative programs highlight incubation initiatives linked to specific industry sectors. Developed economies have much to learn from these SME friendly market leaders.

The pressing issues concerning net neutrality, ecommerce tax policies, climate change and the recognition of Bitcoin as a valid commercial specie are critical developments that goes to the heart of a healthy global SME community.  These emerging market events are benevolent business drivers for SME and concern grows that legislative initiatives are being drafted to codify advantages for politically connected larger enterprises.

Many view this as a manifestation of a broken political system, rife with protections of large well financed politically connected institutions. Undermining these entrenched corporate interests is the ascending digital paradigm promising to dramatically alter business as usual politics. Witness the role of social media in the Arab Spring, Barack Obama’s 2008 election or the decapitalization of the print media industry as clear signals of the the passing away of the old order of things.  Social networking technologies and the democratization of information breaks down the ossified monopolies of knowledge access. These archaic ramparts are being gleefully overthrown by open collaborative initiatives levelling the playing field for all market participants.

SMEIoT

This is where SMEIoT neatly converges.  To effectively serve an efficient market, transparency and a contextual understanding of its innate dynamics are critical preconditions to market participation.  The incubation of SME and the underwriting of capital formation initiatives from a myriad of providers will occur as information standards provide a level of transparency that optimally aligns risk and investment capital. SMEIoT will provide the insights to the sector for SME to grow and prosper while industry service providers engage SME within the context of a cooperative economic non-exploitative relationship.

This series will examine SME and how IoT will serve to transform and incubate the sector.  We’ll examine the typology of the SME ecosystem, its risk characteristics and features.  We’ll propose a metadata framework to model SME descriptors, attributes, risk factors and a scoring methodology.  We’ll propose an SME portal, review the mission of Big Data and its indispensable role to create cooperative economic frameworks within the SME ecosystem. Lastly we’ll review groundbreaking work social scientists, legal scholars and digital frontier activists are proposing to address best governance practices and ethical considerations of Big Data collection, the protection of privacy rights,  informed consent, proprietary content and standards of accountability.

SMEIoT coalesces at the intersection of social science, commerce and technology.  History has aligned SMEIot building blocks to create the conditions for this exciting convergence.  Wide participation of government agencies, academicians, business leaders, scientists and ethicists will be required to make pursuit of  this science serve the greatest good.

 

This is the first in a series of articles on Big Data and SMEIoT . It originally appeared in Daftblogger eJournal. Next piece in series is scheduled to appear on Daftblogger eJournal within the next two weeks.

#smeiot #metasme #sum2llc #sme #office365 #mobileoffice #TARP #capitalformation #IoT #internetofthings #OECD #TBTF #Bitcoin #psychographics #smeportals #bigdata #informedconsent

July 9, 2014 Posted by | banking, Bernanke, capitalism, commerce, credit, credit crisis, culture, economics, information technology, internet of things, legal, legislative, metasme, OECD, politics, private equity, psychology, regulatory, risk management, small business, SME, smeiot, TALF, TARP, Treasury, Uncategorized | , , , , , , , , , , , , , , , , | Leave a comment

Sustainable Economics

We have put our good mother through a lot over the past few million years. Ever since we walked out of the great rift the biospheres dominant species has really left a mark. I know that mark is but a tiny spec on the archaeological record of the earth which spans a few billion years but our impact is unmistakable.
 
I guess it started with the invention of hand tools, fire, wheels, shelter construction, water cultivation and agriculture. You can’t forget hunting in packs, weaponry, domestication of animals, speech, art and writing. A consciousness of a portfolio of skills, specialization, division of labor and the ability to discern exchange value within the community birthed a notion of governance. Our social nature was crowned with our ability to transmit craft and knowledge to successive generations, assuring continuity and cohesion with a common history and a well articulated cosmology. Put it all together and I think you got your basic modern Homo sapien.
Oh yeah, we also developed a psychology, an ego, that incorporates the primacy of ourselves and our selfish needs. It rationalizes and guides our interactions with nature, transforming the intention of our labor into a transaction that alters the conditions of the environment. It also serves as indisputable empirical evidence of the master species, elevated above all others as time marks the progress and dominion of the human race.
 
Our dominion has been codified into our sacred literature. Our creation stories and cosmic mission statements expressly state to exercise our dominion over nature, to propagate the species and to be fruitful and multiply. The screaming unencumbered id, left to its own devises, unchecked in the grand supermarket. We human’s have succeeded beyond our wildest expectations and the species continues to be fruitful and multiplying. 
 
We sojourn on, notching the ladder of history with marks of our progression through the ages. Along the way we Cro-Magnons expropriated the Neanderthals and moved into their Mediterranean digs complete with fire pits, burial chambers and the best take on modern art until Picasso came along.
 
I guess that’s the point. Our survival comes at the expense of other creatures and things. I’m no Malthusian, but Tom Friedman’s flat world is getting crowded.    And as we celebrate the 44th Earth Day a midst the greatest die off of species since mankind coronated himself as master and commander of all things earth; it may be time to consider how our dominion is hampering the well being of the lesser flora and fauna kingdoms and what we can do to begin the practice of a more sustainable economics.
 
When I look at Las Vegas, I behold a garish mecca of capitalism on steroids.  I’m overwhelmed by the banality of the the things we so highly esteem. A community venerated and propped up on the foundation of vice, hedonism and the radical pursuit of money. Unbridled development of a crystal neon city constructed in the middle of a desert, recklessly consumes water and energy resources and misdirects human capital to maintain the facade of an unsustainable economy. 
 
Phoenix poses the same paradox. Darling child of the credit boom, Phoenix is a city consuming itself. The rising threat of climate change, blistering heat, dwindling water supplies and raging haboobs would give any urban planner reason to pause. A bustling city of many millions of striving citizens consuming energy, water and human capital built on the unsustainable foundation of excessive consumption and an unrealistic valuation of the capital required to maintain it. 
 
The explosion of fracking natural gas deposits in the Marcellus Shale formation is another example of sacrificing long term sustainability for the immediacy of shareholder returns. The Marcellus Deposit has proven reserves that only last a decade. As evidenced by the hyper development occurring in North Dakota,  economies tied to resource extraction are prone to experience classic boom bust cycles. During boom times all is well. But the good times don’t last all that long and communities are left in the wake of the bust cycle to deal with the aftermath. 
 
The Keystone XL Pipeline and the rapid expansion of the LNG extraction industries are being touted as the foundation of American energy independence. But this energy resource extracts a high cost on the land and its natural bounty. It poses significant risk to water aquifers, air quality, wildlife and the storage of waste-water byproducts will present long term remediation challenges to communities for many decades after the last well is capped.
 
Our new found fortune of LNG comes with a significant opportunity cost to develop alternative energy sources as it continues to tether our economic dependence on a dwindling supply of fossil fuels. Perpetuating this dependence also requires us to expend huge sums of money on the military. The political arrhythmia in the Ukraine and the keen interest of the United States has much to do with the changing political economy of fossil fuels and the protection and accession of markets.
 
Sustainability requires a new approach to the emerging realities of the global political economy. Recognition that competing interests bring important capital to the table, and that all must be recognized and fully valued in the new algorithms of sustainability is the keystone and pipeline of sustainability. The practice of unfettered development is unsustainable. Regulation, arbitration and revitalization cannot be sacrificed at the altar of laissez-faire politics that only serves to widen the wealth gap at tremendous social cost. The politicization of economic policy cannot continue to be beholden to rampant monetization. Sustainability is the creation of long term value for a diverse community of stakeholders. It needs to become our guiding mantra as the global population approaches 8 billion souls. 

Happy Earth Day.

Music Selection:

Risk: fracking, political, water, air, war, opportunity cost, renewal clean energy, climate change

April 23, 2014 Posted by | business continuity, commodities, compliance, economics, environment, military, political risk, politics, psychology, regulatory, risk management, social unrest | , , , , , , , | Leave a comment

ADP Employment Report: Solid Job Growth Gathers Steam

Private-sector employment increased by 217,000 from January to February on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The estimated change of employment from December 2010 to January 2011 was revised up to 189,000 from the previously reported increase of 187,000. This month’s ADP National Employment Report suggests continued solid growth of nonfarm private employment early in 2011. The recent pattern of rising employment gains since the middle of last year was reinforced by today’s report, as the average gain from December through February (217,000) is well above the average gain over the prior six months (63,000).

The fears of a jobless recovery may be receding but the US economy has a long way to go before pre-recession employment levels are achieved. As we stated previously the economy needs to create over 200,000 jobs per month for 48 consecutive months to achieve pre-recession employment levels. The six month average of 63,000 is still well below the required rate of job creation for a robust recovery to occur.  The Unemployment Rate still exceeds 9%.

The February report is encouraging because it points to an accelerating pace of job creation. The post Christmas season employment surge represents a 30,000 job gain over January’s strong report that triples the six month moving average. The service sector accounted for over 200,000 of the job gains. The manufacturing and goods producing sector combined to create 35,000 jobs. Construction continues to mirror the moribund housing market shedding an additional 9,000 jobs during the month. The construction industry has lost over 2.1 million jobs since its peak in 2008.

The robust recovery in the service sector is welcomed but sustainable economic growth can only be achieved by a robust turn around in the goods producing and manufacturing sectors. Service sector jobs offer lower wages, tend to be highly correlated to retail consumer spending and positions are often transient in nature. Small and Mid-Sized Enterprises (SME) is where the highest concentration of service jobs are created and the employment figures bear that out with SMEs accounting for over 204,000 jobs created during the month of February.

Large businesses added 13,000 jobs during the month of February. The balance sheets of large corporations are strong. The great recession provided large corporates an opportunity to rationalize their business franchise with layoffs, consolidations and prudent cost management. Benign inflation, global presence, outsourcing, low cost of capital and strong equity markets created ideal conditions for profitability and an improved capital structure. The balance sheets of large corporations are flush with $1 trillion in cash and it appears that the large corporates are deploying this capital resource into non-job creating initiatives.

The restructuring of the economy continues. The Federal stimulus program directed massive funds to support fiscally troubled state and local government budgets. The Federal Stimulus Program was a critical factor that help to stabilize local government workforce levels. The expiration of the Federal stimulus program is forcing state and local governments into draconian measures to balance budgets. Government employment levels are being dramatically pared back to maintain fiscal stability. Public service workers unions are under severe pressure to defend employment, compensation and benefits of workers in an increasingly conservative political climate that insists on fiscal conservatism and is highly adverse to any tax increase.

The elimination of government jobs, the expiration of unemployment funds coupled with rising interest rates, energy and commodity prices will drain significant buying power from the economy and create additional headwinds for the recovery.

Macroeconomic Factors

The principal macroeconomic factors confronting the economy are the continued high unemployment rate, weakness in the housing market, tax policy and deepening fiscal crisis of state, local and federal governments. The Tea Party tax rebellion has returned congress to Republican control and will encourage the federal government to pursue fiscally conservative policies that will dramatically cut federal spending and taxes for the small businesses and the middle class. In the short term, spending cuts in federal programs will result in layoffs, and cuts in entitlement programs will remove purchasing power from the demand side of the market. It is believed that the tax cuts to businesses will provide the necessary incentive for SME’s to invest capital surpluses back into the company to stimulate job creation.

The growing uncertainty in the Middle East and North Africa is a significant political risk factor. The expansion of political instability in the Gulf Region particularly Iran, Egypt and Saudi Arabia; a protracted civil war in Libya or a reignited regional conflict involving Israel would have a dramatic impact on oil markets; sparking a rise in commodity prices and interest rates placing additional stress on economic recovery.

Political uncertainty tends to heighten risk aversion in credit markets. The financial rescue of banks with generous capital infusions and accommodating monetary policies from sovereign governments has buttressed the profitability and capital position of banks. Regulatory uncertainty of Basel III, Dodd-Frank, and the continued rationalization of the commercial banking system and continued concern about the quality of credit portfolios continue to curtail availability of credit for SME lending. Governments are encouraging banks to lend more aggressively but banks continue to exercise extreme caution in making loans to financially stressed and capital starved SMEs.

Highlights of the ADP Report for February include:

Private sector employment increased by 217,000

Employment in the service-providing sector rose 202,000

Employment in the goods-producing sector declined 15,000

Employment in the manufacturing sector declined 20,000

Construction employment declined 9,000

Large businesses with 500 or more workers declined 2,000

Medium-size businesses, defined as those with between 50 and 499 workers increased 24,000

Employment among small-size businesses with fewer than 50 workers, increased 21,000

Overview of Numbers

The 202,000 jobs created by the SME sectors represents over 90% of new job creation. Large businesses comprise approximately 20% of the private sector employment and continues to underperform SMEs in post recession job creation. The strong growth of service sector though welcomed continues to mask the under performance of the manufacturing sector. The 11 million manufacturing jobs comprise approximately 10% of the private sector US workforce. The 20 thousand jobs created during February accounted for 10% of new jobs. Considering the severely distressed condition and capacity utilization of the sector and the favorable conditions for export markets and cost of capital the job growth of the sector appears extremely weak. The US economy is still in search of a driver. The automotive manufacturers have returned to profitability due to global sales in Latin America and China with a large portion of the manufacturing done in local oversea markets.

The stock market continues to perform well. The Fed is optimistic that the QE2 initiative will allay bankers credit risk concerns and ease lending restrictions to SMEs. A projected GDP growth rate of 3% appears to be an achievable goal. The danger of a double dip recession is receding but severe geopolitical risk factors continue to keep the possibility alive.

Interest rates have been at historic lows for two years and will begin to notch upward as central bankers continue to manage growth with a mix of inflation and higher costs of capital. The stability of the euro and the EU’s sovereign debt crisis will remain a concern and put upward pressure on interest rates and the dollar.

As the price of commodities and food spikes higher the potential of civil unrest and political instability in emerging markets of Southeast Asia, Africa and Latin America grows. Some even suggest this instability may touch China.

The balance sheets of large corporate entities remain flush with cash. The availability of distressed assets and volatile markets will encourage corporate treasurers to put that capital to work to capitalize on emerging opportunities. The day of the lazy corporate balance sheet is over.

Solutions from Sum2

Credit Redi offers SMEs tools to manage financial health and improve corporate credit rating to attract and minimize the cost of capital. Credit Redi helps SMEs improve credit standing and demonstrate to bankers that you are a good credit risk.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: John Handy, Hard Work

Risk: unemployment, recession, recovery, SME, political

March 3, 2011 Posted by | ADP, banking, Basel II, commercial, commodities, credit, Credit Redi, economics, government, labor relations, manufacturing, political risk, politics, recession, regulatory, risk management, small business, SME, social unrest, Sum2, Treasury, unemployment, unions, US dollar | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Schulte Roth & Zabel Navigating A Brave New World

This years Schulte Roth & Zabel’s  (SRZ) 19th Annual Private Investment Funds Seminar stuck a very different pose from last years event.  One year on from the global meltdown of financial markets, languishing institutional certainty and the  pervading crisis of industry confidence has been replaced with a cautious optimism.  The bold swagger of the industry however is gone, in its place a more certain sense of direction and expectation is emerging.  Though managers continue to labor under unachievable  high water marks due to the 2008 market devastation, 2009 marked a year of exceptional performance.   Investment portfolios rebounded in line with the upturn in the equity and bond markets.  Liquidity improved and net inflows into the industry has turned positive during the last quarter as large institutional investors and sovereign wealth funds returned to the sector with generous allocations.  These are taken as clear signs that the industry has stabilized and the path to recovery and the healing of economic and psychological wounds are underway.  Yes the industry will survive and ultimately thrive again but it will do so under vastly different conditions.  The new business landscape will require an industry with a guarded culture of  opaqueness to provide much greater transparency while operating under a regimen of greater regulatory scrutiny.

The 1,900 registered attendees heard a message about an industry at a cross road  still coming to terms with the market cataclysm brought on by unfettered, unregulated markets and excessive risk taking.  SRZ offered an honest assessment in examining the industries role in the market turmoil.  Speakers alerted attendees to an industry at a tipping point.  To survive the industry must adapt to a converging world that believes that uniform market rules and regulations are the surest safeguards against catastrophic systemic risk events.  A global political consensus is emerging  that expresses  support for industry regulation as an effective tool to mitigate the pervasiveness of fraud and market manipulation that undermines investor confidence and ultimately the functioning of a fair and efficient open free market.

Paul Roth, Founding Partner of SRZ,  noted in the events opening remarks that the market is beginning to recover as evidenced by industry AUM once again exceeding the $2 trillion mark;  but  he warned  that any exuberance needs to be tempered with the understanding that the new normal would not resemble the pre-crash world.  The days of  cowboy capitalism and radical laissez-faire investing are clearly over.   Indeed Mr. Roth wryly observed “the industry must develop a maturity about the need for change.  He concluded “that the industry must respond by playing a constructive role in forming that change.”

The conference subject matter, speakers and materials were all top shelf.  Break out presentations on risk management, regulatory compliance, distressed debt deal structuring, tax strategies and compensation issues all reinforced the overriding theme of an industry in flux.  The presenters passionately advocated the need to intentionally engage the issues  to confront accelerated changes in market conditions.  By doing so, fund complexes will be in a position to better manage the profound impact these changes will have on their business and operating culture.  Subject issues like insider trading, tax efficient structuring, hedge fund registration,  preparing for SEC examinations and the thrust of DOJ litigation initiatives and how to respond to subpoenas were some of the topics explored.

To highlight the emerging regulatory environment confronting the industry, a  presenter pointed to the Southerization of the SEC.  This is an allusion to the hiring of former criminal prosecutors from the Department of Justice, Southern District of New York to go after wayward fund managers.  The SEC is ramping up its organizational capability to effectively prosecute any violations of the new regulatory codes.   The growing specter of criminal prosecutions and the growing web of indictments concerning the high profile case of Mr. Raj Rajaratnam of the Galleon Group was presented as evidence of an emerging aggressive enforcement posture being pursued by regulators.  Managers beware!

Presenters made some excellent points about how institutional investors are demanding greater levels of TLC from their hedge fund managers.  This TLC stands for transparency, liquidity and control.  Creating an operational infrastructure and business culture that can accommodate these demands by institutional investors will strengthen the fund complex and help it to attract capital during the difficult market cycle.

The evening concluded with an interesting and honest conversation between Paul Roth and Thomas Steyer,  the Senior Managing Partner of Farallon Capital Management.  The conversation included increased regulatory oversight, compensation issues, industry direction and matching investor liquidity with fund strategy, capacity, structure and scale.   Mr. Steyer manages a multi-strategy fund complex with $20 billion AUM,  his insights are borne from a rich industry experience.  He made the startling admission that Farallon has been a registered hedge fund for many years and he believes that the regulatory oversight and preparation for examiners reviews helped his fund management company to develop operational discipline informed by sound practices.

Mr. Steyer also spoke about scale and that additional regulatory oversight will add expense to the cost of doing business.  Mr. Steyer believes that it will become increasingly difficult for smaller hedge funds to operate and compete under these market conditions.

Another interesting topic Mr. Steyer addressed were issues surrounding investor redemption and fund liquidity.  During last years SRZ conference investor liquidity was the hot topic.  Fund preservation during a period of market illiquidity and a fair and orderly liquidation of an investment partnership were major themes that ran through  last years  presentations.  Mr. Steyer struck a more conciliatory tone of investor accommodation.  He confessed his dislike for the use of “gates” as a way to control the exit of capital from a fund.  In its place he offered a new fund structure he referred to as a “strip” to allocate portfolio positions to redeeming partners in proportion to the overall funds liquid and illiquid positions.  He stated he believed that strategy to be more investor friendly.

Schulte Roth & Zabel has once again demonstrated its market leadership and foresight to an industry clearly in flux, confronting multiple challenges.  These challenges will force fund managers to transform their operating culture in response to the sweeping demands of global market pressures, political impetus for regulatory reform and the heightened expectations of increasingly sophisticated investors.   The industry could not have a more capable hand at the helm to help it navigate through the jagged rocks and shifting shoals endemic to the alternative investment management marketplace.

You Tube Music Video: Beach Boys, Sail On Sailor

Risk: industry, market, regulatory, political

January 15, 2010 Posted by | hedge funds, institutional, investments, operations, politics, private equity, regulatory, reputational risk, risk management, SEC, sovereign wealth funds | , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment