Risk Rap

Rapping About a World at Risk

SRZ’s Maginot Line

maginot_line_19441Schulte Roth Zabel’s (SRZ) Annual Private Investment Funds Seminar is the kick off event of the year for the AIM industry. In years past it was an event that was full of bravado from an industry flush with great expectations and giddiness over compensation levels that rivaled a small country’s GDP. This years event had more circumspection then bluster and more reflection on how to fashion a considered response to industry challenges squarely in the vortex of the market meltdown.

The shocking transformation and radical reconfiguration of the capital markets industry is underway. In the wake of the Lehman bankruptcy, Bear Stearns merger, market crashes, credit crisis, bank insolvency, recession and lastly the coup de grace of the Madoff scandal put these intrepid wealth managers through a trying year.

Myriad challenges and crises tested many firms management acumen and forced managers to work extra hard to earn that 2 and 20.  With hedge fund closure rates expected to approximate 25%-45% this year, the industry is confronted with enormous challenges. The excess capacity in the industry, heightened regulatory oversight, liquidity constraints and elevated client risk aversion will foster market compression and a dramatic alteration in market dynamics. The well managed, well positioned, well focused and well capitalized funds will thrive on the volatility. Uncertainty is always the mother of invention and the best and brightest of the breed will no doubt find numerous opportunities amidst the massive market dislocations currently underway.

SRZ a leading legal firm servicing the industry effectively laid out an industry battle plan to address many of these acute challenges. In the Crisis Management breakout session the panel offered an interesting metaphor of a hedge fund as an intricate and complex ecosystem. The topology of a fund complex is comprised of many parts that at times may have contradictory and competing interests.

The Crisis Management session conducted a quarterly review of market events that occurred in 2008 as the capital markets deteriorated and the credit crisis deepened. The panels review was an instructive exercise on how managers need to constructively engage problems with an intentional risk management program and how it affects each stakeholder in the hedge fund ecosystem. The principle objective was determining the best course of action to either save the fund or effect an orderly liquidation of the investment partnership. In all instances the strategy needed to consider how to serve the greatest good for all fund stakeholders. SRZ offered attendees a brilliant crisis management game plan for fund managers. It was one of the better presentations on risk management that I have ever attended.

The general session was also very interesting and engaging. The central theme was that hedge funds are under extreme liquidity pressure. The drivers are distressed portfolio valuations, counter-party deleveraging, risk aversion in the markets, market liquidity and increased redemption pressures from investors. SRZ has developed a series of innovative redemption strategies it calls gates. The gates are designed to protect the level of assets under management by controlling an orderly outflow of capital so as not to endanger the overall liquidity and asset level of the fund. SRZ again shows why it is the leading player in the space by offering innovative solutions to industry needs. A great example of a market leader demonstrating leadership by offering innovative product development solutions.

The overall tenor of the conference reminded me of the construction of the Maginot Line. In years past investors were eagerly throwing money at hedge fund mangers to get a slice of the alpha pie. Today hedge fund managers need to build sophisticated battlements to keep the assets of the investment partnership under their control. In a sense the industry as moved from an offensive posture to a defensive one. SRZ is assisting its hedge fund clients to create a defensible business structure that will protect the long term sustainability of the fund and ultimately serve the greatest good of the funds partners and stakeholders.

During these times of extreme market duress tactics and strategies must be employed to protect the fund from excessive redemption runs that would ultimately serve to create a self fulfilling prophesy of liquidation.

Clients who have access to a war council of professionals like SRZ should be well suited to engage the battles they will encounter in the coming year and survive to enjoy the peace and spoils won during the next business cycle.

You Tube Video: Edith Piaf, Mon Legionnaire

Risk: market, credit, legal, reputation

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January 15, 2009 Posted by | hedge funds, legal, Madoff, risk management | , , , , , , , , , , | Leave a comment

“The Perfect Christian Gentleman”

The BBC News Hour ran a piece on US citizens reflections on the Bush Presidency. One woman from Ohio referred to Bush as “the perfect Christian gentleman.” Her point that Bush restored the morality and integrity of the Office of the President after the tidal wave of sin Clinton unleashed in the White House with his sexual dalliances and uncontrollable peccadilloes. According to this fundamentalist Christian woman, Bush achieved this do to his steadfast faith and commitment to Jesus Christ. She even cited Bush’s refusal to covert to Islam after he received an urgent appeal to do so by the Iranian President Ahmadinejad.

As a Christian and follower of Jesus Christ I take great exception to the characterization of George Bush as a “perfect Christian gentleman”. First I must say that my understanding of Christianity is that as human beings we are imperfect and need to be ever mindful of the mistakes and shortcomings we as human beings exhibit and practice every day of our lives. During the past couple of weeks Bush’ has been on a farewell media tour. He has been asked by many correspondents about any mistakes he might have made. To date Bush has not come up with anything of significance. I guess Bush believes himself to be the perfect Christian gentleman. But I believe that any cursory examination of the Bible revels that Mr. Bush has severely fallen short of the glory of God as advocated, taught and lived by Jesus Christ.

We not going to get into a theological debate concerning what a Christian is or what makes one perfect or imperfect. What I wish to convey is my understanding of what the ministry of Jesus Christ is all about and why I believe that George Bush and the rest of the religious right that thinks Jesus Christ is the Chairman of the GOP are dead wrong and misguided at best and damnable propagandists at worst for cooping a great faith tradition to serve their narrow political interests.

The first damnable indictment of Bush is his pernicious use of fear. Anyone with any knowledge of the Bible and the teachings of Jesus Christ are aware of his consistent message of not to be afraid. Mr. Bush and his Republican party propagandists have fed the citizens of this country a steady diet of fear laden manna since 9/11 to justify their radical reactionary political agenda. Fundamentalists codify and justify their view of the world, actions and narrow beliefs with biblical certitude by citing chapter and verse. They turn the Bible or Quran into ideological dogma that protects the powerful and justifies their actions to protect their privilege. Jesus Christ took this world to task. He would not approve.

Another damnable indictment of Mr. Bush and the claim of his perfect Christian gentlemeness is his insistence on war as a means to project power and engage the world. Their are numerous examples of the Prince of Peace teaching that violence is not the chosen way Children of God engage the world. One can start with the Beatitudes and conclude with the night Jesus Christ was taken into custody in Gethsemane and one will have a pretty good insight about his position on violence and war. I often think of St. Peter greeting Mr. Bush at the gates of Heaven. I believe he’ll be asked about the lives of over 4,000 service women and men and significant collateral damage he initiated by his invasion of Iraq. He may also be asked about the 2 mn Iraqis that have been displaced by the war and the hardship it has wrought. Bush is convinced that history will absolve him for his actions. I wonder if St. Peter will do the same?

Mr. Bush’s justification of torture, his obstinate refusal to free the prisoners of Gitmo, his policies to exclude Gay people as equal citizens of our “One Nation Under God” in my opinion are additional examples of how our current president falls short in the perfect Christian gentleman category. Jesus Christ was about respecting life. “Whatever you have done for the least of these you have done to me,” he said. The idea that Bush tortured, imprisoned or excluded Jesus Christ is most unsettling.

As a Christian I am aware of the log that is in my eye. After 52 years on this earth its as big as a Sequoia and in desperate need of removal. But I am comforted in the faith and knowledge that redemption is available to everyone. All it takes is some self knowledge that we are not perfect, that we have turned from our sinful ways and we put ourselves in service to God by helping others. Mr. Bush still has a shot. I’ll be praying that he becomes painfully aware of his imperfections and takes up the task of rectifying his shortcomings. Perfect Christian gentlemen? Don’t think so, not yet anyway.

You Tube Video: Cool Hand Luke, Just a Closer Walk With Thee

Risk: myopia, fundamentalism, dogma

January 15, 2009 Posted by | Bible, Bush, Christianity, faith, gay rights, LGBT, politics, Quran, religion | , , , , , , , , , | Leave a comment

Hunger Banquet

St. John’s Memorial Church
Ramsey, New Jersey
Invites you to attend a
Hunger Banquet
On
Friday, January 16th
7:00 to 9:00 p.m.

What is a Hunger Banquet?

A Hunger Banquet is an interactive educational activity that dramatizes the inequality that perpetuates poverty in the world. Guests are assigned roles as they enter, representing different income levels around the world. What each person receives for dinner depends on the role they are playing. The banquet presents an opportunity for people to see and feel the effects of poverty and to work together to generate solutions.

Why Should We Hold a Hunger Banquet?

Poverty has many faces. Unfortunately, many of them are children’s. According to NetAid, approximately 850 million people worldwide are undernourished. This constitutes 14% of the world’s population. Over 95% of these people live in the developing world. Hunger is least likely to be caused by lack of food. Instead hunger is the result of many factors contributing to food insecurity. Some of these factors include disease, access to water and sanitation, health care, distribution of food, politics, and access to resources. One billion people lack a clean water supply and over two billion people lack adequate sanitation. These two factors are major causes of disease, a leading cause of hunger.

Is there a Solution to Chronic Hunger?

There is enough food in the world today for every man, woman and child to lead a healthy and productive life. Over 30 developing countries have managed to reduce hunger by 25% since the early 1990’s. Hygiene measures resulting from access to water and sanitation can significantly reduce the number of hungry and undernourished people as their bodies are better able to process food.

The solution to world hunger requires a global response. Lets be part of the solution.

You Tube Video: Feed The World

January 15, 2009 Posted by | Millennium Development Goals, poverty | , , , | Leave a comment