By Neil Wilson
Notwithstanding the volcanic ash that engulfed the European continent and shut down most of its air space, we were delighted that the vast majority of the 900 delegates registered for the recent EuroHedge Summit, held as usual at the Palais de la Bourse in Paris, managed to attend. While some were simply unable to fly from the United States or Asia, many of the 750 who eventually came made extraordinary efforts to get there, including those who took private planes and/or drove to Paris from as far afield as Stockholm and Lisbon.
The main talking points at the event were very much the topics outlined in this column in recent months, including not least the revival of the industry's fortunes in the past year and the outstanding opportunity set. Highlights included telling keynote contributions from Leda Braga of BlueCrest Capital Management on systematic macro and Joseph Oughourlian of European event-driven specialist Amber Capital Investment Management, who has revived his business impressively after being one of the most high-profile victims of the Lehman collapse.*
Issues debated included the upsurge of interest in managed accounts and in UCITS III funds onshore in the European Union, as well as the threat of punitive regulation via the EU's proposed Alternative Investment Fund Managers (AIFM) directive.
In contrast with the previous year's event, held when the markets were only starting to revive, the mood was generally much more positive. That said, some discernible unease about the recent rash of regulatory and disciplinary enforcement actions either affecting or threatening to affect major players in the business was in the air.
Among the talking points for delegates were of course the Securities and Exchange Commission action against Goldman Sachs and speculation about whether or not this would affect Paulson & Co.; a recent U.S. Commodity Futures Trading Commission enforcement action involving Moore Capital Management; and a move by Gartmore Investment to suspend one of its top managers in London, Guillaume Rambourg, over allegations that he had broken internal rules by "directing trades" to certain brokers.
During the two-day event, I thought the most interesting and prescient comments about these developments came from Alexandre Col, head of the investment fund department at Banque Privée Edmond de Rothschild in Geneva, where he oversees a group that was one of the very earliest investors in hedge funds— and that now invests more than $11 billion in the industry.
Col said that in today's somewhat febrile market environment, he has been getting more calls than ever before from his many private investors who are being spooked by worrying headlines—headlines that appear to raise questions about some of the industry's biggest and most respected names. But Col himself said, "I have no problems with any of these firms—not Paulson nor Gartmore nor Moore."
And so far at least, Col appears to have been thoroughly vindicated. The SEC, which must have thought long and hard before bringing an action against Goldman, has shown no signs of bringing any sort of action against Paulson. Moore has settled the action brought by the CFTC against a former employee without admitting any wrongdoing. And Gartmore has reinstated Rambourg, who was never accused of breaking FSA rules in the first place.
Nevertheless, as Col's comments also demonstrate, there is still very much a feverish atmosphere in the markets—and a mood of retribution in the air against pretty much all of those who make their living in finance, and not just in banking.
In this atmosphere, there remains a strong temptation for politicians and regulators to be seen to get tough. As Louis Bacon of Moore Capital complained recently, the "demonization" of hedge funds in Europe does not appear to put the situation too strongly.
Rules should be enforced, of course, and those who break them should pay appropriate penalties. And registration with regulators, as we have seen in Europe over several years, can be a positive thing, which is why we have argued in favor of it in the United States from the very first edition of Absolute Return magazine in 2003.
Although the hedge fund business may be envied for sometimes huge remuneration, I would argue there is really no evidence to suggest it is any more corrupt than any other industry—quite the opposite.
For a full report of the summit, see the May edition of EuroHedge.