16/03/2011 Author: Tony Griffiths

Finding the industry's voice

As today’s HFMWeek hits desks around the globe, one hotel in Belgium will play host to a low-key gathering of highly influential people. Boasting a speaker line-up including chiefs at many of the world’s key financial regulators, not to mention some of the best-known names in hedge fund management, the inaugural Alternative Investment Management Association (Aima) Policy & Regulatory Forum represents an industry first in terms of global dialogue and cooperation.   
 
That the event is being held in Brussels, the setting for much of the recent regulatory drama, is no coincidence of course. The EU’s Alternative Investment Fund Managers Directive (AIFMD) is, for many, the piece of legislation that best represents the recent attempts of policy makers and politicians to scrutinise and regulate the industry. Sweeping and controversial, the AIFMD is legislation that affects jurisdictions worldwide, and it is these global ramifications – and their part in a wider regulatory change – that makes the argument for a global debate so compelling.

“There isn’t a global forum currently in which the industry can engage with policy makers and regulators like this and we believe it would be a missed opportunity if we did not bring everyone together,” asserts Andrew Baker, Aima’s chief executive. “The industry needs to hear the policy arguments from the horse’s mouth, so to speak, and policy makers and regulators do want input and expertise from the industry side.”

Six months in the making, the event has been one of, if not the, biggest undertaking in Aima’s 20-year history. Invites to the 200 attendees, all hedge fund luminaries, were sent out at the end of last year and the buzz surrounding the event is strong. Proceedings are on a strictly ‘off-the-record’ basis, which means no press and, most importantly, candid conversation.     

With such opportunity and expectation, you could be forgiven for thinking the pressure on Aima itself, to ensure the event is a success, was overwhelming. Speaking to HFMWeek from the trade body’s London headquarters in the week prior, however, Baker is quick to play down the organisation’s role. “Any event lives and dies by its participants – and we’re very happy that we’ve got the key players attending,” he says casually. “I’m not worried about the event. We’ve got the right people and the right topics.”

Indeed, much has been made of the event’s speakers and panellists. Attendees have commented on the line-up’s “wow factor”, says Baker, and it’s not hard to see why. Among the heavy hitters taking to the stage are: Paul Ruddock, co-founder of Lansdowne Partners; York Capital’s Jamie Dinan; Paul Roth, founding partner at Schulte, Roth & Zabel; and the US Treasury’s Mark Sobel. Add to that senior representatives from the financial regulators in the UK, Germany, France, Brazil and Japan, further keynotes and panellists, and a host of Aima members, and the scene is set, very much, for high-level discussions.      
    
Aima’s transformation, from support act on a largely European stage to a global heavyweight influential enough to put on an event such as today’s, has been one of the last two years’ more encouraging developments.

The association’s main offices are somewhat appropriately situated on London’s Fleet Street, the historical heart of the capital’s newspaper and media industry. A modest affair, the 15 employees account for the majority of Aima’s 20 full-time staff. Others are spread among offices in Toronto, Cayman, Tokyo, Sydney, Hong Kong and Singapore, while working groups and volunteers – Aima’s “eyes and ears”, says Baker – can also be found worldwide.      
The team has grown by five in the last 12 months, but the true nature of its recent progress has been one of reputation and influence rather than size.

“In the past, Aima has been seen as reasonably quiet and inward facing, and not necessarily meaningful for some parts of the industry. In the last couple of years there’s been a need for them to step up, and they’ve been extremely successful in that,” says Henry Kenner, CEO of London-based Arrowgrass Capital Partners.

“Aima, along with the Hedge Fund Standards Board, for such small organisations, have done an incredible job of representing the entire industry in a way that has focused on the facts as an effective means of countering some of the more emotional reactions that have been introduced to the debate.”

For Baker, the turning point is clear – 29 April 2009, the day the AIFMD’s first draft was unveiled to the world. “It was a seminal moment, no doubt,” he admits. “Previously we’ve had regulation that could impose higher costs and unnecessary restrictions, which would have proved an irritant more than anything. This was completely different. It had – and, if the implementing rules turn out badly, still has – the power to put people out of business.”

 Baker, who joined Aima in 2007 after six years as COO of asset manager Schroders, was promoted to chief executive in January 2009, arriving “on the back end of an argument,” as he puts it. “To what extent was it our role to get in on the political process? We had, in the past, always been a bit-player in the financial world. It was clear that we needed to get much closer to the public debate.”

And closer they have become. Whether it has been making representations at various EU and US regulatory hearings, co-ordinating industry responses to political and legislative developments, or simply an increased media presence, Baker has overseen a much-needed step up in exposure and influence.

Membership is returning towards its historical peak as well. The present corporate total of 1,250 (in over 40 countries) has grown steadily since the hit taken during the financial crisis. Most encouragingly though, the annual membership renewal rate is at its highest level in recent memory, nearing 90%, having been close to 75% after the Lehman collapse. The association’s blossoming links with non-management groups, such as investors and service providers, as to better reflect the industry’s demographic, is something Baker is also proud of, highlighting the addition of APG Asset Management, supervisor to Europe’s largest pension fund, to the Aima board late last year as a prime example.

Perhaps the most significant change in the past two years, however, has been in Aima’s organisational capacity. The appointment last April of Jiri Krol as director of policy and  government affairs marked an important step in the association’s ambition to deliver its message with clarity, weight and technical clout. “One of the lessons of AIFMD is that there is never enough education, never enough dispelling of myths,” Krol tells HFMWeek. “We need to show how we, the industry, fit into the broader economic picture.”

Krol’s credentials make him a formidable addition to the Aima team. Joining from the European Commission, where, among several high-level roles, he was responsible for the co-ordination of policy towards the G20 and the Financial Stability Board (FSB), Krol has also held senior posts at the Czech Ministry of Finance and in 2009 led the Czech presidency of the EU in its work on MiFID.  
 
Having previously compartmentalised regulation and policy as two separate divisions, Aima will this year combine the two under Krol’s stewardship, Baker reveals. New additions to his team are expected in the coming months – first up, Anna Larris, due to take control of Krol’s asset management sub-team at the end of March – cementing the new division’s place as one of Aima’s tent-pole developments. With the number of working groups and committees swelling noticeably in recent months, putting further strain on an already sizeable workload, further fresh faces at Aima are also due.

Ultimately, it is up to Krol to drive Aima’s technical argument, delving into the detail and contributing to the law-writing process. The key battleground “is still AIFMD,” he admits, and with the Directive’s Level 2 underway (the granularity that follows Level 1’s broad, rule-based brush-stokes), his first-hand experience from the EU legislative procedure could prove a trump card.

“The rules have been passed and now it’s onto the detail,” says Krol. “We are working very closely with EU regulators and Esma on achieving the right result on Level 2. We have been able to provide them with extensive expertise in highly technical areas which are now being regulated for the first time.”

“The big dangers are not necessarily in the content of the Directive,” he adds, “it’s in how the regional solutions interact that will have the real impact, ensuring that an entity can trade globally, both safely and efficiently.” 
 
Krol picks out the EU Asset Management regulatory reform panel at today’s event as one most likely to satisfy gluttons for technical detail. Featuring several regulatory representatives involved in the drafting process of AIFMD Level 2, the discussion is expected to prove particularly popular with attendees, he says.

First and foremost, today’s Policy & Regulatory Forum is an international event though, and as well as European developments, sessions will take place on US regulatory reform, global convergence and current developments. As such, despite AIFMD’s immediacy, Baker is keen to emphasise Aima’s global ambitions, most notably in the US.

Dodd-Frank is “by no means taking a back seat” to the AIFMD, he says. “In fact, in the last few months we have submitted more responses to consultations on Dodd-Frank than AIFMD, we’ve been working very closely with the SEC and CFTC on implementation of the new rules.”

Despite having people on the ground in both New York and Washington DC, Aima is yet to establish a US base. Having a US chairman, Todd Groome, has been “hugely advantageous”, Baker says, but, as an alternatives trade body with an eye on global expansion, an official presence is the logical next step. As such, a US office is being discussed.

In the past, concerns have been raised that Aima’s US counterpart, the Managed Funds Association (MFA), would not take kindly to overt encroachment on its patch. Baker is quick to dismiss such a notion. “We have strong relationships with a number of organisations out there, including the MFA,” he says. “There is plenty of common interest and we want to make sure that we’re aligned.”    

Aima’s expansion will not stop at the US. During HFMWeek’s visit, new offices in Switzerland and Brussels are mooted, as is representation in Brazil, while there is also talk of further expansion in Asia, building on a recent push into China, which last year benefitted from the first Chinese translation of Aima’s Roadmap funds handbook.

Aima, it seems, intends fully to live out the theme of its big event. “Above all, the message is that there has to be global consistency of regulation. We need to send a powerful signal that people want to engage in constructive dialogue, and contribute positively to the goals of the G20,” concludes Baker.

As managers, investors, regulators and politicians from every corner of the industry gather in Brussels today, the opportunity to send such a signal has rarely been better.