Hedge fund managers are paid too much, says hedge fund veteran – Fund Forum
Hedge fund vereran Manny Roman has conceded managers in his industry are paid too much, adding its name to a growing list of companies regarded as over-generous to its top executives.
Speaking at Fund Forum today, Roman said from a social standpoint “of course hedge fund managers get paid too much [and] one cannot justify [the levels] in finance versus other jobs”.
Roman, who was a senior manager at GLG and is now also at its acquirer Man Group, said it was “hard to argue” against higher inheritance taxes to “share more broadly and there will be transfer policy from people who have been lucky in life – such as hedge fund managers – versus those who have been unlucky.”
In a wide-ranging talk at the Monaco event, Roman added investors would continue paying the relatively higher fees for hedge funds – that fuel high paypackets for successful managers – as long as their funds could deliver “10% to 12% net”, whereupon there was “little pricing pressure”.
Long-term, both GLG and his new employer Man have outperformed that. “The moment you stopped delivering good risk-adjusted returns people would ask what amn I paying for?”
He also spoke of his regret at the “tremendous mistake” – “I blame myself” – of his firm GLG Partners having exposure to Lehman Brothers when the US bank went bust in September 2008 – and his own personal nervousness when a deupty at the Bank of England telephoned him at home near midnight as the US bank went under, asking “what is going on? I thought, if he called me to ask what is going on, then that’s not good”.
Some GLG fund assets subsequently got “clogged” in Lehman’s bankrupt estate. Roman then added the firm strictly enforces counterparty exposure limits, among other risk controls.
Roman called the following month – October 2008 – an incredible scary period. “The market was down 10% and there was no bottom. The level of nervousness in the market was incredible”.
As the world potentially faces its next ‘Lehman moment’, but on a national not corporate scale, Roman said ECB head Mario Draghi was “highly competent” and politicians “know the end-game, which is some sort of transfer from Germany through the rest of Europe.” Roman seemed to suggest Germany should support this, as its export industry “would collapse were it not for the euro.”
Roman predicted higher unemployment in Spain and more companies restructuring. He questioned whether Italy would need as much assistance, given its ability to produce goods and its wealth.
Of his homeland France, he said: “In the short term we will see French bonds trade significiantly weaker and that will be the catalyst that leads to decisions.”
He said: “The publiuc sector is the issue and no political leaders have dared to touch it but they will have to eventually”.
Roman added greater scrutiny of his industry – such as he is now receiving as part of publicly listed Man Group – was inevitable, and not unwelcome.
Greater regulation was one of four prominent trends in his industry, he said. Investors wanting to pay fees on realised gains; the move for greater transparency; and more consolidation were the others.
He said greater regulatory scrutiny “came with the territory” and overall hedge fund regulation was a “small problem” compared with issues around bank funding reserves, and sovereign debt.
Fortnight-long visits from the UK FSA each year to ask testing questions of his firm was “a good thing”, and he expressed concern “you can still set up a hedge fund in New Orleans with $20m, an administrator no-one has heard ofand not register with the SEC. It is hard to argue protecting investors is a bad thing.”
Roman said more M&A would come in the hedge fund industry, in part mirroring Man’s recent deal for fund of funds rival FRM.
In conducting M&A, though, he said it was crucial to have sound reasons benefiting clients to do it. “The first [post-M&A] call will be the Towers Watson or Mercer or investors, and they know generally the track record of asset management M&A is not great.”
Roman also foresees greater regulation of high frequency trading. and he expressed interest in knowing why there were severe data problems in the US immediately following the debut of Facebook as a listed company.
Roman left the appreciative audience with an investment tip: Bordeaux vintage 2009, “the best vintage in Bordeaux since 1961”.