Velociraptors make appearance at NICSA West Coast Meeting

Highlights from NICSA’s West Coast Regional meeting, held Thursday, April 21, at the offices of the Capital Group in Los Angeles, California:

“A lot of the velociraptors are interested in becoming T.  Rex,” asserted one of the participants in the morning’s session on “Alternative Mutual Funds and Investments,” talking about the convergence between hedge funds and mutual funds. Aggressive hedge fund managers are interested in acquiring some of the asset heft of their mutual fund competitors, while traditional fund managers are relying more and more on the alternative approach that have made hedge funds nimble.

Every financial scandal is the same. . . sort of. That was the assessment of lunchtime keynote speaker Paul Haaga, Chairman of the Board of Capital Research and Management Company. The reactions to scandals always follow the same pattern: beginning with calls for action and “existential threats” against the regulators and ending with increased authority for those same regulators and a sweeping set of reforms — many unrelated to the presenting problem.

But while it’s easy to predict how a scandal will end, it’s extremely tough to foresee how they will begin, because the root causes are never the same. That means that fund managers who don’t want to be part of the next one must look beyond the top items on the SEC’s current audit list and think broadly about ways that things might go wrong. They need to understand the spirit — and not just the letter — of the regulations and how they can adhere to that spirit even when the written rules are vague.

Political contributions and money management may not mix, concluded the panelists in the afternoon session on “Requirements and Implementation Challenges of Pay-to-Play Rules.” While investment adviser policies are still evolving, many firms are prohibiting political contributions by associates that exceed the de minimus amounts permitted in the regulation (up $350 if the associate is eligible to vote for the candidate and up to $150 if they are not).

Warning to those who may want to work in the investment industry one day: don’t make any large political contributions. It may prevent you from getting a job, since the pay-to-play rules apply to new hires.

Best Practice Guidelines

Funds using short selling and derivatives should:

  • Clearly designate staff responsible for oversight.
  • Communicate with the board early and often.
  • Monitor and control the overall risk of any position.
  • Prepare a matrix with permitted strategies and oversight procedures.


NICSA: 8400 Westpark Drive, 2nd Floor McLean, VA 22102 • Tel: 508.485.1500 • Fax: 508.485.1560