Hedgemark's Lapkin on Challenges to Hedge Fund Investing(Audio)

We'll be speaking with an expert having to do with hedge funds. Andrew Lapkin is the chief executive of Hedge Mark International. And of course we are continuing our very special live broadcast here It Invested sixteen The Power of Big Ideas of bn Y Melan Client Conference, bort Dov Mountain near Tucson, Arizona. So let's get back to New York City. Bloomberg World headquarters. Katherine Puttery has a liber

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You're listening to Taking Stock with Kathleen Hayes and Pim Fox on Bloomberg Ring. Alternative investments an increasingly important topic for investors, for money managers, and certainly for the firms that service these very important groups in the financial services industry. Hedge funds have been hot, But are they so hot? Now as many big investors pull away from using hedge

funds as one of those very important all investments. This is a topic being discussed today here at DEB Mountain, the DEB Martin Mountain, rots Carlton, about thirty miles from Tucson, Arizona, at the Power of Big Ideas Invested sixteen. It's a b n Y Melon client conference and a person who has uh speaking on one of the panels today is joining us now, and that is Andrew Lapkin, CEO of Hedge Mark International, to take a look at this important question. Andrew, welcome, well,

thank you, it's great to be here. Kathy, So hedge funds, It's interesting that people are this question is is people are looking at going into hedge funds at a time when we see a lot of headlines. In fact, pim PIM just mentioned one investors are leaving hedge funds. In April, the New York City Employee Retirement System voted to liquid eight their hedge funds, and they're following Cowper's move a couple of years ago. What's going on? Uh So, hedge

funds certainly are getting a lot of attention. In many cases a little bit more of that negative you know, focus, and some of that is it makes for good headlines, so obviously people kind of easy to poke at. But behind it all really are a few real issues, and it starts with the high fees that typically hedge funds have a fee structure where they're taking often two percent of the assets under management plus an additional of the profits, and so that works out to be you know, quite

lucrative for the managers. To the managers typically give up almost no transparency on their portfolios, so investors really don't know what they're investing in. They get very limited information. And then, uh importantly, the hedge fund manager really has full control, so all the trading decisions, the what they trade, the markets, how much leverage, whether what instruments they use as well, and then you know, finally they really control

even the assets, whether they go back to investors. We've seen a number of funds do what's called putting up their gates and so investors asked for their assets back and the managers say, you know, no, And so those issues are quite real and that's really what's driving a lot of the headlines. You know, I keep thinking hedge funds, and it's like a hedge fund for everything and every everyone. Um, do you happen to know where the two and twenty came from? How does someone decide that that was going

to be the industry standard? Yeah, I mean it dates you know, way back to UH to some of their you know, earliest funds and a lot of it. Really, when you talk about hedge funds, it really is a bad name because you're you're grouping now disparaged strategies all under one category. And really the definition of hedge fund is more appropriate to really say that it's a structure. It's a structure that that the manager controls, and one that typically pays a management fee and a performance fee.

And so, you know, one of the big issues is to say that equity long short, that merger are distressed at credit strategies are all the same, they're all bad for an investor really is sort of a false, you know statement in that regard and leading to part of the problem why you're seeing some of the negative of

focus getting grouped too high. What are dedicated manager accounts. So, you know, one of the things that we've seen is while New York City Cowper's, a few big investors have said, hey, I'm just gonna get out of the space that that Often that's a little bit of a knee jerk reaction, a little bit more of a how do I address the political you know heat, But it doesn't hit it at the issues. And so for some other big investors, what they've done is they say, the problem is not

with the hedge fund manager. It's not that these strategies don't add value to the portfolio, it's not that they're they're talented stock selectors. It's that the structure is really broken. And so what's evolved in the marketplace is a structure called a dedicated manage account. And what that does is it allows the hedge fund investor to basically have their own fund. Uh. And in this case, the manager's role

becomes very limited. They're really just trading the portfolio. And so in the dedicated manage account, it's the client who now controls the assets, so they control the cash and security, so the manager can't run off with the money. So that's obviously a key piece. UH. It means that the investor can actually negotiate a different feast ructures, so you don't have to just pay the two in twenty. You can actually negotiate a customer structure in some cases no

performance fees, in other cases multi year lookback. So you get better alignment with the manager and the investor in terms of that strategy. UH. And importantly the ability to negotiate investment guidelines. And so now it's not just what the manager does, it's the investor can have an influence in terms of the strategy that's important for their overall

you know, portfolio, their overall pension plan. Andrew explain how hedge Mark International, which is a B and y Melon affiliate, how that plays into this whole conversation of risk management, hedge funds and all. Really, I would say, rather than just hedge funds, alternative investments, the non traditional stock bomb cash sure. So you know, B and Y Melon has made made a big move to really help their core institutional client base address the knees around alternative investing in

both real estate, UH, venture capital and hedge funds. UH specifically with funds. Hedge Mark was part of that strategy. They acquire the company two years ago. And hedge Mark is really about helping people build and operate their own private, dedicated manage account platforms. So in the past investors sometimes looked at manage accounts being a solution to some of these issues of facing hedge fund investing. The problem is

that to implement it was very difficult. Pension funds would have to go out and hire staff around legal and structuring expertise, accounts and operation experts. And so these are really areas that are the strength of being y Melon and so it allows investors really to outsource UH those non core aspects to someone like the bank. So it's

like a turn key operation exactly. So the investor can still focus on picking the hedge fund, negotiating the key terms, but then the operating of all of this UH is done by the band. Benny Lapkin, thank you so much. Thank you very much. Andrew Lapkin, Chief Executive Hedge Mark International ABEAT and why Melon affiliate. You're listening to taking Stock on Blueberg Radio. Some of the big topics, the

big questions hanging over global markets. That's coming up next as we continue our live broadcasts at here at invest of sixteen The Power of big Ideas of being well Mell and Quiet Conference in Arizona