At GFIA, we have joined forces with Laven Partners, which (as an oversimplification) provides operational due diligence to investors, and compliance and fund set-up consulting to managers.
Date: Apr 4, 2012 Author: Peter Douglas
Keywords: Hedge funds, Due diligence, Asset allocation
At GFIA, we have joined forces with Laven Partners, which (as an oversimplification) provides operational due diligence to investors, and compliance and fund set-up consulting to managers.
A more thoughtful explanation of their business model is that they are facilitators to the institutionalisation of hedge funds.
Certainly in Asia, and we suspect globally, the composition of demand has changed radically.
Most allocators now already know which managers they’re prepared to consider, before they get on the plane. There are few names which are genuinely on the “possible” list, and they are, as we know, the global asset-gathering firms. Even at the more “boutique” end of the spectrum, an extraordinarily small number of names crop-up in conversations.
However, the research, assessment, and due diligence work that allocators undertake has exploded over the last five years. And Laven has an ISO-standardised operational due diligence process that is scalable, replicable and consistent.
Allocators do not want a broad view of interesting and up-and-coming managers. They want specific professional assistance with the process of getting capital invested in an institutionally-acceptable fashion. And while they may be looking for some level of idiosyncrasy of investment edge, they want a globally-uniform standard of operational and business process.
It’s like going to a Chinese restaurant in a provincial western city. The food may be “exotic”, but the experience is familiar – each guest chooses their own starter and main course, followed by a dessert and leisurely coffee. It’s a whole different experience from the jumble of common dishes and blur of chopsticks picking food from across the table that would characterise dinner in Kowloon (in Hong Kong) – but which would baffle or scare diners in Terre Haute.
Similarly, while the manager may tempt investors with event-driven this, credit arbitrage that, or equity long-short the other – the dominant investors in today’s industry want to see the same standards of process, operations, business practice, governance and compliance that they see the world over.
On the manager side, there are a much larger number of managers who would like to be involved in the game of institutional capital.
They need to present their wares in a package that conforms to global norms. Laven provides a service to managers that allows them to calibrate where they are and what they would need to do in order to ensure that a global investor will feel the comfort of familiarity when looking under the hood of the investment strategy.
So, in short, Laven’s “DNA” is in understanding, from a COO rather than CIO perspective, what’s needed at the interface of institutional capital and the hedge fund industry. They’re practical, melding an in-house law firm with operational due diligence specialists, and with structuring and compliance experts. Clients see one solution, but incorporating a uniquely broad set of disciplines.
GFIA has not walked away from the search for great investment talent. We still believe that a highly-experienced investment professional who owns their own business and manages an appropriate and limited amount of capital, with the minimum infrastructure needed to connect intelligent allocators with the investment proposition, is the optimum alpha generator.
We continue to research and monitor boutiques with enthusiasm and affection. But since we started in 1998 we have always tried to stay a step ahead of the curve in our world, and the opportunity to bring global processes into our world of Asian and emerging market hedged and boutique managers, was an extraordinarily interesting one.
