IMQubator tackles hedge fund governance
Jeroen Tielman’s Dutch seeding fund IMQubator seeks entrepreneurial funds willing to embrace innovative corporate governance structures as well the fund’s base in Amsterdam.
“I’m taking a step back and reconsidering the relationship between investors and hedge funds,” explains Jeroen Tielman, chief executive and founder of IMQubator, the hedge fund seeding arm or ‘incubator’ for Dutch pension fund APG.
Unsurprisingly for a hedge fund seeder, Tielman believes hedge funds deserve a more prominent role in investors’ portfolios. This is because they are skills-based companies, which consider risk management a central part of their DNA and deliver on what they claim, Tielman argues.
However, it is no secret that many investors were disappointed by hedge fund behaviour during the financial crisis and the Madoff scandal did not improve hedge funds’ reputation.
Tielman attributes some of this disappointment to the investors themselves, who failed to pay enough attention to the small print of their investments. Investors should have read the documentation better than they did prior to the financial crisis, he says.
Yet Tielman also acknowledges that hedge funds could do more to realign interests between investors and managers and ultimately restore the balance of power between managers and investors. This, he believes, is the duty of hedge fund seeders who can influence a fund’s structure, management and philosophy in its earliest stages.
Today, investors want more control and there are an increasing number of examples of investor activism. Tielman believes the best way to deliver increased control to investors is to change a hedge fund’s governance structure. This involves allowing investors a seat on a fund’s investment committee to give them greater influence over major decisions when changes to strategy, risk or positions are made, or if the board were to fire a manager. The management company should also have the power to veto a portfolio manager’s decisions, Tielman says.
Liquidity is another critical issue for investors, as hedge funds have been known to develop discrepancies between the underlying liquidity of investments and the supposed liquidity of the fund. “We have synchronised the liquidity of the funds [seeded by IMQubator] since [IMQubator was launched] but it is a more important issue than we originally thought,” he comments.