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Information Hand-offs Contribute Mightily to Increased Operational Risk

September 7, 2010

Analysis of:Operational Risk #4: Dropped Batons—Hand-offs | articles.stonehouseconsulting.com

Just like the potential for an incomplete pass in a football game, passing information between people, departments, organizations and systems within an investment management firm creates significant opportunity for failure.

Lack of Training and Cross-Training Are Major Contributors to Operational Risk

August 30, 2010

Analysis of:Operational Risk #3: Novices, Apprentices and Soloists—Inadequate Training or Cross-Training | articles.stonehouseconsulting.com

Training and cross-training are terrific measures to mitigate operational risk, but the absence of such measures in many firms actually contributes to higher risk.  This is the fourth in an 11-article series on operational risk on the buy side for both traditional and alternative investment managers.

Managers in Over Their Heads--and Overworked As Well

August 23, 2010

Analysis of:Operational Risk #2: The Blind Leading the Blind—Overextended and Underqualified Managers | wp.me

This article is the third in an 11-article series about the top ten operational risks most commonly seen on the buy-side.

Are You Taking Your Operational Risks Seriously?

August 17, 2010

Analysis of:#1 Operational Risk: Complacency—Trivializing and Disregarding Risks | wp.me

The first in a series of 10 articles on operational risk, this article focuses on management complacency about what might go wrong.

Investment Management: Top Ten Areas of Operational Risk

August 10, 2010

Analysis of:Top Ten Areas of Operational Risk for the Buy Side | wp.me

An 11-article series (this is the introductory article) on the areas of operational risk most often seen by a leading firm specializing in strategic, operational and IT consulting for investment managers and hedge funds.

Separate Accounts: Do Hedge Fund Managers Realize the Implications?

August 7, 2010

Analysis of:Hedge Fund Transparency: The Long-Term Implications of Separate Account Management | wp.me

The article was published in the February 2010 edition of the CFA Institute’s Investment Performance Measurement Newsletter.  It summarizes some of the long-term implications of separate accounts on the hedge fund industry.  In some cases, investment managers and their clients may not have thought the issue through before deciding to go the route of separate accounts.

Recordkeeping with Regulatory Reform

August 7, 2010

Analysis of:Critical Recordkeeping: Trade Tickets and Order Memoranda | wp.me

Many hedge fund managers have done a less-than-perfect job maintaining proper records -- or, at least, sufficient records to survive an SEC exam.  Indeed, disclosure and books-and-records violations contributed to the SEC's charges against New York-based Ark Asset Management Co., Inc. in December 2009.

Operational Due Diligence Advice for Managers

August 7, 2010

Analysis of:Top 10 Tips for Mastering Operational Due Diligence | wp.me

Hedge fund managers -- and sometimes traditional investment managers -- are subjected to regular operational due diligence reviews by their current and potential investors.  The article provides a brief list of the 'top ten' steps a manager can take to put their best foot forward during the due diligence process.

Multiple Prime Brokers Can Backfire from an Operational Risk Perspective

August 7, 2010

Analysis of:Migrating Toward Multi-Prime: Did Your Manager Increase or Decrease Operational Risk | wp.me

While many hedge fund managers adopt a 'multi-prime' approach in an effort to decrease their operational risk, but some may have inadvertently increased their op risk profile.

Internal Auditors: Generalists Asked to Perform Specialist Functions

May 18, 2009

Analysis of:Internal Auditors: Mission Unaccomplished? | www.cfo.com

Many companies are asking more of their internal auditors, particularly in with risk assessment and process improvement, and internal audit departments often lack expertise in those areas.  Unfortunately, the article fails to address three key issues:1.  Even when internal auditors possess process improvement, risk assessment or fraud detection skills, they often lack the industry or sub-industry expertise necessary to allow them to identify red flags or know best practices.2.  Many firms have no internal audit function whatsoever, nor do they engage any external providers to assist with such reviews.  This is particularly true in the hedge fund business, one of the leading industries to hit the headlines this year.3.  Staff turnover with internal and external auditors increases the chances that risk points are missed.

Short Selling Rules - Why Do Mutual Fund Companies Care?

January 8, 2009

Analysis of:Fund managers fight tougher disclosure rules | www.ft.com

Perhaps most important is that the IFSA, the ICI and and IMA have issued a joint statement. It is possible these organizations would support a concept similar to 13F reporting in the US. Emphasis by regulators and market participants on short selling - versus any other kind of transactional activity - speaks to a lack of thought about what moves markets. Many hedge funds would be sorely taxed from an infrastructure standpoint to provide transparency.  This, coupled with increased emphasis on operational risk, is likely to squeeze small hedge funds out of the market and provide significant barriers to entry for new participants.

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