Authored by: Christine Fenske of Baker Tilly Virchow Krause and Richard Reading of Baker Tilly Cayman
At the annual GAIM Ops Cayman conference, a leading forum on hedge fund operations and compliance, major themes emerged on the importance of acting now for your future business and the importance of balance for emerging managers.
Acting now for your future business
Businesses can often get caught up in the short term gains of actions. At the GAIM Ops Cayman conference, discussion often came back to making the right decisions for the long term strategy and health of the business, instead of focusing solely on maximizing short term profits.
One challenge many in the asset management industry face is acting ethically and not just legally to maximize profit. Although there are blatant illegal activities such as insider trading that obviously fall outside of ethical or responsible activities, other actions classified as legal are still unethical and can have significant consequences on the business in the future: charging undisclosed lower fees to select clients, accepting funds despite clear mismatches of risk to fund strategy, etc.
It is important to keep ethics in mind and step back from the short term profit when thinking about taking short-cuts – what consequences down the road will these bring?
Finding the right balance as an emerging manager
Emerging managers in today’s market are more likely to go out of their way for investors, are more adaptable to change, and are more flexible in terms of fee structures in comparison to more established managers. This nimbleness stems from a lean operating structure with minimal overhead, but this has to be balanced with the right investment in infrastructure and people to support future expansion and (hopefully) explosive growth.
Often emerging mangers shy away from the increased operational costs associated with more people and the new processes that might be entailed with various positions being added. When staffing increases are under consideration, it is usually better to have the needed people from day one to run the business effectively and incorporate the needed processes from the start.
With increased staff, many companies also have increased technology costs and many seek to mitigate those costs. However, from an employee retention and investor perspective, it is important to equip your employees (and company) with the right technology to perform at an optimal level and avoid staff turnover.
Overall, these themes run together into one overarching tenet: Plan and act for long-term growth and profitability of your company, don’t focus only on the short-term.
For more information on this topic, or to learn how Baker Tilly’s asset management specialists can help, contact our team.