Gwyn Roberts

18/05/2011 Author: Gwyn Roberts

Editor's view: 19 May 2011

The conviction of Raj Rajaratnam last week poses a series of problems for the industry. Regulators the world over will see it as an opportune moment to lift the lid on funds. Those who trade equities – whose whole modus operandi is to build up unparalleled expertise in the public markets – remain particularly vulnerable.

This vulnerability is worrying. Not because insider trading is widespread – it isn’t, at least not in a systematic firm-sponsored sense – but because the same whispers that can lift or depress markets, can do untold reputational damage to honest managers.

The wiretap evidence used against Galleon was compelling. However, a number of other funds have been caught up in the ensuing maelstrom, and, whether guilty or innocent, the damage is done not at the hands of judge and jury, but the moment a firm’s name is linked to a problem.

Speaking to managers last week, it is clear that guarding against this type of accusation remains an operational priority. Expert networks are being checked, compliance manuals rewritten, but few would really know how to respond if the call came.

In fact, responding with a reflex over-reaction – as Gartmore did in the UK – could be just as damaging as a manager sitting on its hands and waiting for the fuss to blow over. The best approach, as one consultant advises in this week’s news analysis (p16), is to stay “within a rules-based environment” – but with rules fluid, this still remains challenging.

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