Margareta Pagano: Hedgies don't deserve to be hunted to death
Sunday 03 May 2009
Once again, the Brussels bureaucrats have got the wrong enemy with their latest attack on the hedge fund and private equity industries. The EU's directive on tougher controls for the industry is a bad and unnecessary piece of regulation on two simple counts and should be booted out of court.
First, neither the hedge funds nor the private equity industry were responsible for the global crash, despite popular mythology. While many people still find this difficult to believe, hedge funds and private equity were more a symptom of the roaring bull market than a cause of any credit frenzy. In fact, you could argue that many of the highly leveraged operators which claimed to be hedge funds were really huge, long pension funds or synthetic banks, calling themselves hedgies because they could charge more fees. Second, most of these leveraged hedge funds, which admittedly may well have helped destabilise the financial markets, have already gone out of business.
So, not only has the EU got the wrong target, its going for it too late. It's also interesting that Brussels is aiming its arrows so directly on London's Mayfair. Since as much as 80 per cent of the industry is based here, this does rather confirm the growing, niggling view that this is as much a political move by the Paris-Frankfurt axis to squash London's continuing success as a financial hub.
But more important than such local politics is the impact which some of these new rules could have on the really good part of the industry. It won't be long before our savings are invested in these funds as they go increasingly for the retail market. Funds operating in London are already well regulated by the Financial Services Authority. There have been no disasters here, no cases of investors losing money and certainly no taxpayer money going to bail them out. This is because the FSA runs a tight ship, requiring all funds to have an independent administrator and independent auditors. These are essential rules, making sure the fund managers can't run away with your cash, as Bernie Madoff did with his Ponzi scheme. Madoff, if you remember, had his own one-man accountant and did his own administration. He would have found it nearly impossible to run his scam here.
Hedge fund managers I spoke to last week are concerned that, if the regulations go through, they will hurt the smaller, niche funds most because of the costs and time involved in form filling. But these are the guys we want – the nimble, "absolute alpha" investors (who aim to make a return whatever the market does) who are small enough to be inconsequential. By contrast, the worst hit by the crash were Nat Rothschild's Atticus Capital and Christopher Hohn's TCI fund, both funds which went for big, long-only, equity stakes which got blown out of the water. That's not hedge fund investing. As Louis Bacon, one of the most successful of all macro investors, once warned – the hunter should never become the hunted.
Unfortunately, the EU's directive may fly through Strasbourg because it needs only majority support. If Mayfair's moccasin-clad hedgies are not to be turned into the hunted they should hot-foot it across the Channel and start persuading the bureaucrats they really are the good guys.
Can Fiat's Sergio Marchionne get Chrysler back on the fast track?
When Sergio Marchionne joined Fiat, the first car produced under his helm was the Punto. It wasn't long before Fiat sold six million of what became known as the turnaround car. Now Marchionne will be applying his turnaround skills to Chrysler, the American car-maker, which this weekend is going through bankruptcy proceedings in a bid to save itself. If anyone can save Chrysler, it's Marchionne.
In six years he's turned Fiat into one of the fastest growing car companies in the world and he clearly thinks he can do it again. This suggests he will bring Fiat's more economical, fuel-efficient technology to Chrysler to help create a new generation of cars. The partnership will also mean the new company – to be created once the bankruptcy goes through – will also see the two combine manufacturing and distribution to cut costs.
What's his secret in such a troubled industry? At Fiat they say it's his attention to detail, working closely with the factory floor but also being tough with people not up to the job. He's a deal-maker too, teaming up with Ford for the new Fiat 500 and with Tata for joint ventures in South-east Asia.
But he explains that central to making Fiat successful was making it Italian again. Although raised and trained as an accountant in Canada, Marchionne is as Italian as they get. There's a story he tells that, three years before he took over at Fiat, he met up with more than 30 of his Italian relatives for lunch while on holiday at a restaurant in Abruzzo. Marchionne told them off because, outside in the car park, he had spotted only Mercedes. He told them that next time he came back to Italy he wanted to see only Fiats in the car park – or he wouldn't speak to them anymore. Chrysler's workers will be hoping he has the same vision for their cars.
Feminine touch: Project aims to put women in boardrooms
Karen Witts, the chief financial officer of BT Retail, is one of 50 women who will be taking part in simulated board meetings in London this week with more than 20 top chairmen and directors. It's a concept brought over from Norway – where 40 per cent of all directors of companies must by law be women – by the Professional Boards Forum to give women a chance at showing off their business skills.
In Norway the project has worked so well that similar sessions have lead to at least 150 board appointments. Centrica's chairman, Roger Carr, and Sir Philip Hampton, chairman of RBS, will be taking part in the event which will hopefully lead to new appointments here too.
Clearly they know having a woman on board is good business, something backed up by research from the University of Kent last week. Academics have discovered that when choosing a leader, people are more likely to go for candidates with more feminine faces during troubled times.
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