August 2021

A Brodie Consulting publication in conjunction with RQC Group

$1 trillion $135 billion Funds down in July

No winning streak continues forever. After nine Size of China’s Man Group consecutive months of positive performance, the recent sell-off AUM as sector closed down in July. For the after regulatory reported in H1 month, the HFRI Fund Weighted Composite Index crackdown results. was down 0.60%, but remains up 9.45% for the year.

The HFRI Equity Hedge (Total) Index was down 0.76%, with positive performances from quant directional and equity market neutral outweighed China sell-off a mixed blessing by losses in energy and healthcare strategies, China’s recent market crash has largely unregulated private which were down 2.38% and 1.51% respectively. left multiple long-biased hedge education sector would be forced Equity indices continue to be the best performing funds nursing big losses but to turn non-profit and the result HFRI strategy, up 11.12% for the year. has proved a boon for those was even worse than anticipated. Event Driven was down 0.82% (HFRI Event Driven managers with short positions. China’s largest education (Total) Index) in July, largely due to a more difficult According to Bloomberg, the provider, New Oriental Education month in the Multi-Strategy sector, which was crash amounted to a $1 trillion & Technology Group, lost half its down 3.11%. sell-off as concerns about value in an hour. Macro was marginally down 0.10% (HFRI Macro regulatory pressures took hold. The sell-off dip has however (Total) Index), but was the best performing Between them Alibaba Group, been seen as a good entry strategy. The positive performances from Kuaishou Technology, Meituan point for investors, with data systematic (+0.59%) were however set against and Tencent Holdings all lost from research firm EPFR Global losses from discretionary (-0.96%) and currency around $350 billion of market cap showing China focused funds focused managers (-1.56%). in July according to Factset data. recorded net inflows of $3.6

Looking at the Regional Indices, there were a wide The rumours started in the billion in the week to 28 July. dispersion of performances. The most notable was internet chatrooms that China’s the HFRI Emerging Markets India Index, which was up 6.25%, while on the other end of the scale the Latin America Index declined 4.10%. UBS launches women led investment portfolio In a move to broaden and to make their investments. In Upcoming Events strengthen diversity, UBS has 2020, Aberdeen Standard 15 September 2021 launched the Carmen portfolio Investments launched a similar AIMA Annual Forum 2021 to invest in hedge funds run by fund. 21 September women, reports the Financial The same article refers to Preqin MFA Digital Assets 2021 Times. The portfolio will be data that shows women still 21-22 September actively managed and employ only represent 10.9% of senior Global Distribution Conference ALFI quantitative analysis. employees in hedge funds, 22 September This move comes as large which is a small increase on the MFA Data & Technology 2021 (virtual) investors are increasingly previous year’s numbers. using ESG criteria and tools Click here to see further events in 2021

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 1 content, please do not hesitate to get in touch with the team. August 2021

News

Man Group reports strong half year results

In its half-year results released on net flows into AHL TargetRisk and the half in positive territory.

28 July, Man Group reported record Man Institutional Solutions, which According to Luke Ellis’ CEO Review, funds under management of $135 were offset by outflows from FRM “strong absolute performance from billion, with net inflows of $1.2 billion. Segregated and Alternative Risk [the] quant alternative strategies The described the Premia. drove a significant increase in results as a ‘blowout [signalling] a Absolute performance across the performance fees.” change in fortune for [the] wider firm was up 8.6%, with alternatives sector.’ There were particularly strong up 5.8% and all AHL products closed

Eisler Capital Coffey looks to raises $1bn long-only market

Eisler Capital, set up by Edward Bloomberg reports on Greg Coffey’s where she was a member of the Eisler in 2015, has raised the Kirkoswald expanding beyond Global Fixed Income, Currency and second largest European fund hedge funds to include a long-only Commodities group, to run this unit.

this year, reports Bloomberg. side, with a particular focus on This move comes shortly after The $1 billion multi-strategy emerging markets. the firm hired Joseph Mauro from fund, which started to trade The $3.5 billion business, which was Light Sky Macro to lead the firm’s on 1 July, is mandated to make launched in 2018, recently hired expansion plans and Neha Coulon, leveraged bets and seeking New York based Diana Amoa from again from JPMorgan, to lead the returns of 12-15%. JPMorgan Asset Management, firm’s ESG push.

Einhorn focuses on Inflation

In David Einhorn’s Q2 investor time when investors have been letter, published by ValueWalk, pouring money into technology he writes that inflation is here to companies. The result, he writes, stay. will be higher prices as the

Einhorn makes the distinction traditional firms retool to increase between temporary inflationary production. In addition, the higher bottlenecks and more structural wages to ‘lure’ employees back to problems, associated with the office and Fed ‘tinkering’ with long-term under-investment expansionary policies, will also in traditional businesses, such lead to higher prices. as mills and miners, during a

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 2 content, please do not hesitate to get in touch with the team. August 2021

News (cont.)

Ackman changes tack Bill Ackman has Holdings (PSTH), would have used been forced to US regulators up the bulk of the ‘rejig’ his deal to buy raised concerns SPAC. Instead, 10% of Vivendi’s about the move, Ackman will make Universal Music which Ackman the investment Group. described on CNBC through his hedge

Having initially as being a “deal fund, Pershing agreed to complete killer.” Investors Square Holdings, a the deal through also had concerns, move that Jefferies his SPAC, Pershing with PSTH share analysts said would Square Tontine price falling almost be a ‘big outlay’ for 20%. The deal the fund.

GSK defies Elliott

Taking little notice of Elliott Management’s recent ‘recommendations,’ GlaxoSmithKline (GSK) has appointed Brian McNamara, an ‘insider,’ as head of its consumer healthcare division. Elliott had been calling for a six-month review of its consumer division, which GSK is planning to spin off and list, along with a process to “select the best executive leadership.”

Elliott ups the ante at Duke

Showing that there is no rest for In their usual letter to the target the activist, Elliott Management’s Board, which they released via ‘standoff’ with Duke Energy PR Newswire on 19 July, Elliott Corporation is ‘heating-up’, writes called for Duke to: 1) enhance the Barron’s. Board’s independence; 2) improve

Having announced its stake in the operational performance in Florida; energy firm two months ago, the 3) increase focused and enhance manager has been engaging with value in Indiana; and 4) attain a Duke investors and received what it premium valuation. Duke response called ‘an outpouring of feedback’. is that the activist is “cherry picking.”

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 3 content, please do not hesitate to get in touch with the team. August 2021

News (cont.)

Archegos aftershocks Funds avoid Binance Credit Suisse’s 165-page report by law firm Hedge funds are increasingly giving Binance a wide Paul, Weiss, Rifkind, Wharton and Garrison into berth, given the flood of negative headlines and its Archegos failings makes for tough reading, increased regulatory scrutiny. The Financial Times showing the ‘bank failed to properly monitor reports that several funds have curbed their trading, with tens of billions of dollars of exposure,’ reports crypto specialist Tyr Capital saying it had “significantly Bloomberg. decreased its exposure.”

The damning report points to due diligence In response to the concerns, Binance is taking a series failings, but no criminality inside the bank. of what appear to be game-changing – or perhaps last

The bank booked an additional loss from ditched – steps to allay concerns, including becoming a Archegos in its second quarter earnings of regulated financial institution, winding down its futures and $653 million. It has also announced a new Chief derivatives products business in Europe, appointing a new Risk Officer, with the appointment of David CEO and cutting the amount of risk that clients can take to Wildermuth, formerly at Goldman Sachs. 20 times leverage.

Skybridge believes crypto has further to run

Perhaps not surprisingly from a manager with digital asset offerings and looking to launch a US crypto ETF, Skybridge has said crypto has further to run. Speaking on CNBC’s Squawk Box, Skybridge founder Antony Scaramucci has said bitcoin is a buy at today’s price and will be trading at $100,000 by the end of the 2021. His comments follow the launch of the Skybridge Ethereum Fund in early July, a fund that launched with a $5.7 million commitment and will, he believes, raise $100 million.

Gensler doubles down on crypto criticism

SEC chairman Gary Gensler became cryptocurrency exchanges for than Luddite when it comes to the latest regulator to take aim at the regulation,’ which currently do not fall crypto, having taught courses on crypto market. under the agency’s remit. crypto finance at MIT. On the one

He called on Congress to give the This follows Japan’s financial hand he urges caution and on the SEC more power to police what regulator saying that it will look other he said that he believes it he describes as ‘the Wild West at digital currencies as part of its “could continue to be a catalyst for of crypto-trading.’ Gensler said crackdown on money laundering. change in the fields of finance and money.” that he was ‘specifically targeting But Gensler is more a progressive

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 4 content, please do not hesitate to get in touch with the team. August 2021

News (cont.)

Growth in sustainable investing

Sustainable investments today amount to The largest increase in sustainable $35.3 trillion in AUM, according to the biennial investments over the two years has been in Global Sustainable Investment Review (GSIR). Canada (48%), followed by the United States This is just over a third of all professionally (42%). But it is the United States and Europe managed assets in the US, Canada, Japan, that represent more than 80% of global Australasia and Europe, and is an increase of sustainable investing assets.

15% over two years. The most common sustainable investment According to the Review, we have seen strategy is ESG integration, accounting for the ‘global acceleration of an international $25.2 trillion in AUM, followed by ‘negative sustainability agenda driven by international screening, corporate engagement and agreements such as the Paris Agreement and shareholder actions, norms-base screening the United Nations Sustainable Development and sustainability-themed investment.’ Goals, both of which are calling out the important role of finance.’

Higher quality ESG requirements

The FCA has written to that while the FCA the chairs of authorised welcomed “innovation,” fund managers on the he is “concerned by the need to improve the number of poor-quality quality of ESG funds put fund applications” and forward. the “impact this may

The head of the FCA’s have on consumers.” asset management As a result, the FCA supervision unit, Nick has created guiding Miller, has said that principles for fund they had seen a high managers, for pre and volume of applications post authorisation to for the authorisation help AFMs ensure that of funds with an ESG they are complying with focus. Miller added ESG requirements.

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 5 content, please do not hesitate to get in touch with the team. August 2021

Guest Article

Time for an Operational Due Diligence Therapy Session?

In the following Guest Article, Quentin Thom, Co-Head, Managers need to demonstrate to investors a willingness perfORM Due Diligence Services, takes a ‘therapy’ to adopt and maintain best practices, as well as always approach to ODD. looking to improve operationally. Our approach to working

There are so many different pressures on managers, both with managers is akin to therapy sessions, for it is about new and existing, that all too often they can fail even breaking down their current approach and setting it the simplest ODD tests. Managers rightly focus on the against the reality of an ever-more-demanding institutional day-to-day running and growing of their business, but expectation. at the same time they need to be able to face up to the Such an approach has the traditional characteristics of an challenges and pitfalls associated with an investor ODD institutional ODD process (including detailed manager and review. fund level documentation review) with the added benefit

To achieve this, we take what we call an ‘ODD therapy’ of ‘counselling’ that includes higher-level guidance and approach, providing an additional level of recommendations, rarely provided in live-fire investor ODD guidance to ‘patients’ to guide them reviews. The goal is to avoid the simple ODD mistakes. through the potential mire. Today, As in therapy, it is designed to be painless, but it is this includes the virtual world of designed to go deep into the manager’s processes, screen sharing (including process and aligning the core objective of ODD - to get invested and systems walk throughs), data rooms, stay invested - with ‘operational conviction’. Now more dealing with the pandemic and a than ever, investors have a choice on how they do this ‘new hybrid normal’, blending and will consider the time, cost and resources available in WFH and the office, cyber order to continue to meet this objective. and information security Quentin Thom threats, to name a few.

“Managers... need to be able to face up to the challenges and pitfalls associated with an investor ODD review.

Quentin Thom

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 6 content, please do not hesitate to get in touch with the team. August 2021

Marketing Presented by

Don’t undervalue the importance of your website

It is almost always an error to ensure that the messaging is clear. of their brands go far beyond the underestimate the value of a It is often surprising how little copy website; in fact, the very brevity website. Time and again websites there is on a website, which should of this information is part of their are the first port of call for any make this straightforward exercise, mystique. But most managers are not basic investor due diligence. This is but it rarely is. All too often hours are in this position and instead need to emblematic of a brand and should spent coming to a compromise over use their website as an important part be a clear representation of the a particular line. The result should be of their marketing armoury to tell their manager. If the website strays from simple and well written, and never story. what the manager is saying in their ever over complicate the story.

presentation, or vice versa, or is just There are always going to be funds, not obvious, then it is a potential DD such as Greg Coffey’s Kirkoswald red flag. and Jim Simons’ Renaissance A website is an inexpensive marketing Technologies that can afford to have tool, but time should be spent to basic placeholder sites. The strength

REGULATORY Presented by

FCA Business Plan

The FCA has published its Business companies, whilst retaining managers of authorised funds) on Plan for 2021/2022, which sets out its regulatory standards that are this topic; the key messages are key areas of focus for the coming year. at least as robust as that of the also of interest to other types of

This is the first Business Plan under European Union asset manager the stewardship of Nikhil Rathi, • Increasing the supervision of ESG • A supervisory focus on AFMs, the FCA’s current CEO who took attributed of asset managers’ following the findings of their office in October 2020. Against a investment products, with a focus June 2021 review

backdrop of Covid and Brexit, the on ensuring that such products • Continuing to work with other FCA acknowledges that it needs to be are promoted in a manner that parties on establishing the right transformative, in terms of innovation, is clear, fair and not misleading. framework for long-term asset assertiveness and adaptiveness. As detailed in an earlier article funds (LTAFs) in this Newsletter (‘FCA creates Items of interest for asset managers • A focus on six of the most guiding ESG principles’), the include: important cross-market issues: FCA subsequently sent a ‘Dear • Ensuring that the wholesale fraud; financial resilience; Chair’ letter to Authorised Fund sector better suits UK markets operational resilience; Managers (‘AFMs’) (i.e. lead and the needs of investors and Cont’d over page

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 7 content, please do not hesitate to get in touch with the team. August 2021

(cont.)

Cont’d from page 7 international cooperation; The FCA is also increasing its carrying out regulated activities

diversity and inclusion; and ESG supervision of newly authorised • A continued focus on market • A tougher approach to firms. abuse and financial crime authorisations with greater focus • ‘Use it or lose it’ – an initiative on scrutinising applicant firm’s looking at removing a firm’s financials and business models. permissions if they are not

Revisions to SPAC Listing Rules The FCA is changing the Listing markets. approval for any proposed

Rules that apply to special The changes, which take effect acquisition purpose acquisition companies on 10 August 2021, remove the • A time limit on a SPAC’s (SPACs). These are companies presumption of suspension for operating period if no formed for the sole purpose SPACs that meet certain criteria acquisition is completed of identifying and acquiring intended to strengthen the • The US leads the way in suitable business opportunities. protections for investors. These SPACs, with $87 billion At the IPO stage they are include: raised in the first 3 months effectively ‘shell companies’ • A ‘redemption’ option of 2021 alone (compared pending the acquisition(s). allowing investors to to $83 billion for the whole There has been a presumption exit a SPAC prior to of 2020). The UK lags that a SPAC’s listing is when any acquisition being behind, but it is hoped that it announces a potential completed these more relaxed rules acquisition target, or if details • Ensuring money raised will make a more of the proposed acquisition from public shareholders is competitive venue for have leaked. This is to protect ring-fenced SPAC listings. investors from disorderly • Requiring shareholder

FCA Publishes Policy Statement on Investment Firms Prudential Regime

The FCA has set out its latest stakeholders following an earlier reporting.

feedback on the Investment Firms Consultation Paper. IFPR is a comprehensive overhaul Prudential Regime (‘IFPR’), which Topics of interest include of the prudential regime. It aims to affects most investment firms and regulatory capital and liquid assets consolidate the framework for firms asset managers, and takes effect on requirements, risk management whilst making it more aligned with 1 January 2022. including the introduction of the the risk profile of the sector. The final Policy Statement PS21/9 discusses ‘ICARA’ process (which replaces the rules are expected to be published in comments received from industry ‘ICAAP’), remuneration and regulatory Q4, 2021.

This newsletter is a selection of the previous month’s sector news, trends, regulatory developments and best practices. Any opinions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 8 content, please do not hesitate to get in touch with the team. August 2021

(cont.)

SEC Division of Examinations Publishes Risk Alerts The SEC’s Division of Examinations The second of these discusses the has published two Risk Alerts of most frequently cited deficiencies interest to the buy-side. identified by its staff as relates

The first of these highlights in detail to wrap fee programs. These are the most common compliance portfolios where a comprehensive issues observed by its staff related charge is levied by an investment to principal and agency cross manager or investment advisor to trades. Firms are encouraged to a client for providing a bundle of review their written policies and services. Firms that recommend procedures to ensure that they are wrap fee programs are encouraged consistent with the Advisers Act to consider and adopt policies and and the rules thereunder. procedures to address such risks, conflicts, and challenges. A principal trade is where a firm transacts a security between its These Risk Alerts provide own account and a client’s account. an indication as to the SEC’s A cross trade includes where a firm examination priorities and are transacts a security between two therefore of interest to all SEC client accounts. registered investment firms.

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This document has been produced by Brodie Consulting Group in conjunction with RQC Group.

Brodie Consulting Group is an international marketing Founded in London in 2007 and with a dedicated and communications consultancy, focused largely office in New York, RQC Group is an industry-leading on the financial services sector. Established in 2019 cross-border compliance consultancy specializing in by Alastair Crabbe, the former head of marketing FCA, SEC and CFTC/NFA Compliance and Regulatory and communications at Permal, the Brodie team has Hosting services, servicing clients with AUM in excess extensive experience advising funds on all aspects of of $580 billion. their brand, marketing and communications.

United Kingdom: Alastair Crabbe +44 (0) 207 958 9127 Director [email protected] Brodie Consulting Group United States: +44 (0) 778 526 8282 +1 (646) 751 8726 [email protected] [email protected] www.brodiecg.com www.rqcgroup.com

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This newsletter is a round-upselection ofof thethe previousprevious month’smonth’s sectorsector news,news, trends,trends, regulatoryregulatory developmentsdevelopments andand best practices. Any opiopinnionsions expressed are those of the author only and the newsletter does not constitute personal advise or a personal recommendation. We always seek to maintain tight editorial standards. If you have any comments on this 9 content, please do not hesitate to get in touch with the team.