Are Service Providers To Hedge Funds Doing What They Say They Do?
Service provider failures in hedge funds, such as lax fraud checks and conflicts of interest, highlight urgent need for clear fiduciary duties, robust oversight, and strict adherence to protocols to protect investors.
Two recent stories in the news made me (again) reflect on the importance of service providers to hedge funds: the collapse of an Australian hedge fund following a cyber-attack and York Capital winding down its European hedge fund business.
In the cyber-attack case, the fraudsters might have been stopped earlier if all the relevant counterparties had followed best practice when it comes to signing off on money transfers and double-checking things when red flags should have been raised (but weren’t).
In the York Capital case, Credit Suisse expects to take a US$450m hit as a result of the shutdown. Credit Suisse reportedly owns a 30% stake in York Capital through its asset management arm. One of the reasons behind that investment seems to have been to get access to distributing the York Capital funds to CS clients. It seems we here have another case of a wealth manager that “recommends” funds managed by a firm that it is a part-owner of... This is very common and very wrong.
It needs to be clear where one’s fiduciary duty lies. Either you are a wealth manager helping clients choosing appropriate funds for their needs and risk tolerance. Or you are a product…
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