Thank you Harriet Agnew (Financial News) not only for your kind words but for your work writing about and investigating the financial industry so professionally.
It is a real pleasure to have so many attendees here tonight. Thank you very much for coming. We have 80 % managers and investors; some friends from banks and other service providers and the press. Hopefully you will enjoy yourselves and share good war stories.
This is our 8th anniversary party. We only hold it every two years and have to restrict the amount of attendees to 100. It was harder this year than 2 years ago!
We have grown substantially and I am proud to announce an increase in profits of 40% for the year end of April 2013. In the last two years we have invested in two new offices and have promoted three partners. I am personally very grateful to the Laven team for all their work; organising this event; and to my partners, Alexandra Tzalla, Petra Hollis and Tom Morgan in particular, for their trust in what Laven stands for.
Two years ago the culminating message of my speech was – do not be a frog! …
By that I did not mean don’t be French …
No, the message was less kind:
If you put a frog in hot water it jumps out! But a frog in room temperature water stays and if you heat the water slowly it will remain there and die. Our inability to react to significant changes that occur gradually is lethal. People should make themselves aware of gradual change or face the consequences.
Is the alternatives industry sufficiently aware of the changes that it has been facing since 2008?
I did not believe it was 2 years ago. I also feared then as I do now that within a decade there is a real risk of complete political control over the fund industry.
How do we help at Laven ?
Through our global regulatory consulting work which is global we have gained the trust of regulators and financial companies in the jurisdictions in which we work.
Through our Independent Process of Operational Due Diligence, the first to be certified under the ISO 9001 quality management system, we have gained the trust of investors.
Through our cross-border structuring work, we help managers by applying our knowledge of the global regulatory environment to actual ongoing operations.
We add value because our approach has been and will remain holistic.
Who do we help at Laven ?
Our client base over the last two years has grown to over a 100, winning mandates from large financial institutions and fund managers.
We help companies that have a good appreciation of the importance of operations and compliance. Growth companies also benefit from an understanding of how best practice in compliance and operations impacts their commercial health.
We also help regulators from the Financial Conduct Authority to the Monetary Authority of Singapore, both of which meet with us every 6 months. We also talk to the National Bank of Holland and the Bank of England.
We participate in events to defend the industry as I did on the BBC Today program twice in the last 5 months. We are pleased to volunteer to work with associations like AIMA, to develop valuation guidelines; or questionnaires for directors of funds; as we did at the end of last year. We speak to graduates from universities like Imperial College and EDHEC. We support charities created by people from the alternative industry linked to the protection of children.
We also promote the “FT Guide to Investing in Funds” which the Pearsons Group published last June. Nearly 2,000 copies have been sold and it is available in bookshops at international airports, which must be a good sign!
Everything we do is aimed at improving the industry’s standards, whilst limiting the administrative burden of compliance.
What are we doing right now at Laven ?
Compliance
A lot of work for UK managers, reviewing their operations, and ensuring that they are in line with new AIFMD compliance rules. A lot of work for European managers emigrating towards the UK and Luxembourg.
We assist with regulatory applications in the USA, the UK, Luxembourg and Singapore. We host companies under our FCA advisory umbrella.
We do internal compliance audits, those required under new laws in Singapore, those which are recommended in the UK under the FCA handbook, and those we now carry out in relation to the SEC and CFTC.
Due Diligence
We are doing a lot of due diligence work for very large investors (pension funds, insurance companies and banks) covering operational due diligence for funds, hedge funds, and private equity funds. We plan to offer due diligence services on real estate funds as well.
We also perform due diligence for buyers of financial services companies.
Consulting on Governance and Structuring
We do a lot of work assisting decision makers on their choices of funds structures, offshore and in Luxembourg… we advise on other investment structures and managed accounts.
We also host clients and managed accounts under our fund platform in the BVI, which benefits from our strict adherence to compliance rules.
What is Laven’s long term plan ?
Ultimately our aim is to change the way the finance industry invests.
The next decade belongs to those who understand that smart investments will go to those who are not the biggest, but to those who are the most processed and are able to perform at the same time. There is a strong correlation between a healthy risk culture (which includes a good understanding of business management, investment processes and risk management processes) and long term performance. An even stronger correlation exists between a weak risk culture and massive losses.
What can the industry do ?
Since two years ago we have seen some 13 material convictions, prison sentences and scandals. From Greenlight Capital the manager involved in insider dealing, to Coutts, HSBC and EFG, all subject to anti-money laundering fines, to the Libor scandal, to the KPMG insider dealing leaks for a Rolex, to the closure of some hedge funds caused by the mere investigation by the regulator … It will not go away … We have new rules, a new FCA, a new AIFMD, a new form of SEC and a new form of CFTC reporting.
Three things the industry must do:
1 – The industry has to survive – Survival will come from adherence to higher standards and automation to be above the rest and remain ahead of politicians when it comes to compliance. The financial industry must change from within. We believe that: “what you think may change what you do. But more importantly what you do every day will change what you think”. Do compliance.
2 – The industry has to regain trust through leadership – At present the industry is not trusted and does not do enough to be seen as trustworthy.
By way of parallel, take the aerospace industry. It hardly sees any significant failures, although there are some 100,000 flights everyday in the world. It is a success and it is one of the most highly regulated industries there is.
Yet back in the 50s, when the hedge fund industry started, the Comet plane, one of the most advanced plan in the world at that time, blew up in mid air twice in the space of a few months killing everyone on board. Only thorough professional analysis and the ensuing regulations have avoided such problems repeating themselves. Unlike in finance, the improvements made to the aerospace industry stay – there is no deregulation as we have had following the regulations of the 30s. Things stay safe.
The financial industry should strive to work to the same standards as the aerospace industry when it is capable of frauds worth USD50bio, which did not only affect the Madoff management company but brokers, banks, auditors, lawyers and regulators. Every aspect of the industry was somehow connected. No wonder that, the financial industry is not trusted. Avoid generating lack of trust as part of your culture. Do that every day.
Conclusion for the next two years
“Try not to become a man of success but rather try to become a man of value” … Albert Einstein.
The alternative fund industry is at the most 66 years old, has not been regulated and thrived through the many years of banking and market deregulation. It is time for it not to be just a success, which it is, but also an industry of values. In the scheme of things it is at its beginning of its journey and must grow up.
I mentioned the frog and the hot boiling water … I think the water is now starting to boil and I cannot see enough frogs jumping about.
The industry knows the solutions but it is slow in taking them up.
This may be related to our own human infancy. I like to remember that humans have only been around for 200,000 years. Think that one of the oldest species on earth, the leatherback Turtle has been around for 100 million years. Our planet of course was born 4 and a half billion years ago. This gives us perspective.
If finance is to remain significant it must take a measure of its duration and decide if it wants to last a few years or a few million years.
We are pretty sure that if you are here you are making the right choices and if 100 of your take away that message to 10 people each, you will reach another 1,000 and so on.
With that confidence in mind, the whole of Laven wishes the alternative fund industry a happy 100 million years ahead. And I wish you a happy anniversary with all of us.
