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SBAI Newsletter - March 2021
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In March newsletter:

  • New Stakeholders
  • SBAI Publishes Practical Guidance for Alternative Mangers Developing Approaches to Responsible Investment
  • SPARK Launch - The SBAI Programme for Small and Emerging Managers
  • Standards Corner: Liquidity Risk Management
  • Standards Corner: Prevention of Market Abuse
  • Event Summary: Spectrum of Approaches to Responsible Investment
  • Event Summary: Investing in Crypto Assets and Blockchain – The State of Play
  • Upcoming Events 

New Stakeholders


The Standards Board is delighted to welcome new additions to the SBAI family.

Investor Chapter
  • Healthcare of Ontario Pension Plan (HOOPP) (Canada)

Signatories
  • Balyasny Asset Management L.P. (USA)
  • Bluebell Capital Partners (UK)

Core Supporters
 
  • LFIS Capital (France), Signatory since 2020
 

SBAI Publishes Practical Guidance for Alternative Managers Developing Approaches to Responsible Investment


The SBAI has published a memo that provides a framework for alternative investment managers to navigate the complexities of developing a Responsible Investment approach. The memo, part of a series of SBAI publications and events on Responsible Investment (RI), focuses on key considerations for managers developing an RI Approach, critical questions for investors to ask during due diligence and guidance for documenting an RI Approach in an RI Policy. 

The memo provides a detailed analysis of the foundations and building blocks of an RI Approach. Areas of focus include Responsible Integration of RI-related risks, Responsible Asset Selection and Ownership, and Responsible Corporate and Market Citizenship. The memo also covers key foundations of an RI Approach including resource requirements, data, governance, and disclosure to investors.  

Future SBAI publications will supplement this memo by diving deeper into the practical implementation of these approaches in different alternative investment strategies, including Long-Short Equity, Macro, Credit, Systematic and Insurance Linked Strategies. These memos will highlight the nuanced thinking that is required for RI in these strategies and provide investors with a guide to forming expectations for an RI Approach in different alternative investment strategies.

To read the press release in full, please click here.

 

SPARK Launch – The SBAI Programme for Small and Emerging Managers


On 30th March the SBAI held its launch event for SPARK – Are you ready for Institutional Investors? The event included an introduction to the SPARK programme as well as a panel discussion which covered topics including what allocators are looking for, investment and operational due diligence considerations and top tips and common pitfalls for small and emerging managers. The SBAI would like to thank all the contributors to this event: Mario Therrien (Chairman of the SBAI; Head of Investment Funds and External Management at CDPQ), Sherri Rossoff (Managing Director at RockCreek), Adrian Sales (Head of Operational Due Diligence and Partner at Albourne Partners, Robert Sachs (Managing Director, Business Development at Whitebox Advisers) and Kirk Sims (Head of Emerging Managers Program at Teacher Retirement System of Texas).

To find out more about SPARK please visit our new webpage here which includes:
  • An overview of SPARK
  • How the Alternative Investment Standards can help small and emerging managers, and
  • Dedicated resources for small and emerging managers.

Asset managers and allocators interested in joining future SPARK events or the SPARK Programme should contact us at info@sbai.org.  

Standards Corner: Liquidity Risk Management


The European Securities Markets Authority (ESMA) recently published the findings of its review of liquidity risk management, highlighting scope for improvement for some UCITS funds. 

Liquidity risk management has always been an area of focus in the alternative investment industry and is extensively covered by the SBAI’s Alternative Investment Standards (Standards) and covered in the Open Protocol, a comprehensive risk reporting framework hosted by the SBAI. 

Summary of What the Standards Say
  • Redemption Management Tools: Fund terms should be disclosed to investors including those relating to redemptions and redemption control mechanisms [Standard 2.1]
  • Approach to Liquidity Management
    • Risk processes need to be adequate and well understood by portfolio managers, traders, risk managers and other staff related to the management of the portfolio [Standard 11.1]
    • A liquidity management framework should be developed to limit the risk that the liquidity profile of the fund’s investments does not match the fund’s obligations [Standard 12.1]
    • Stress testing and scenario analysis of the fund’s liquidity position should be conducted regularly [Standard 12.2]
  • Governance and Oversight Arrangements: Ensuring the fund complies with governance code of conducts and other director guidance [Standard 21.6]

As early as 2009, the SBAI held a special consultation to improve the Standards to address concerns about the handling of redemptions in times of liquidity distress. 

Open Protocol Risk Reporting Framework: 

The Open Protocol provides a valuable tool for both asset managers and allocators to understand their risk exposures – including liquidity risk. It covers exposure information from many different investment strategies and provides detailed metrics which facilitate the assessment of the risk profile (including liquidity) of the fund for each exposure type. The SBAI encourages managers and investors to review and adopt Open Protocol to improve overall risk management. Systemic risk supervisors are also encouraged to review or adopt the Open Protocol methodology in their own efforts to better understand potential financial stability concerns.

Please click here for a short SBAI memo summarising both the tools that can be used to manage this risk and the associated Standards.


Standards Corner: Prevention of Market Abuse


Suspicious Transaction Reports are increasing again and the FCA in a recent speech on “Locking Down Market Abuse” indicated it is focused on proactive market monitoring. Proper market conduct and the prevention of market abuse are crucial to maintaining market integrity and overall confidence in financial markets. Market participants have to comply with relevant laws and regulations in the markets they invest in. 

The SBAI Alternative Investment Standards (Standard 23.1) cover prevention of Market Abuse and provides an extensive list of internal compliance arrangements to identify, detect and prevent breaches of market abuse regulations. This may include a dedicated compliance officer, documentation of compliance procedures and incidents, providing market abuse training and provision of regular compliance reports to the fund governing body.  This guidance will help asset managers ensure they are ready for any potential questions on the topic of Market Abuse.
 
 

Event Summary: The Spectrum of Approaches to Responsible Investment


Responsible Investment policies and integration of financially material RI-related risks are fast becoming a minimum standard for allocator due diligence. The SBAI held a panel discussion to discuss the Spectrum of Approaches to RI. This event coincided with the publication of the SBAI Toolbox Memo on defining and documenting an RI Approach (described above). 

Key points raised during this panel included:
  • The integration of RI-related risks into investment and risk management processes is no longer niche and generally expected by allocators. There are, however, some strategies where integration can be challenging for reasons such as asset class, trading rather than asset owning strategies, portfolio concentration or average holding periods.
  • Exclusion lists can be an effective tool for RI and should not be seen as mutually exclusive to inclusion lists. There are several strategies that use both of these tools in their investment processes. This type of strategy is starting to become more common along with increasing interest in impact portfolios.
  • Engagement has traditionally been viewed as direct engagement with issuers via company meetings. It is an approach that is not practical with all asset classes. There are other more holistic ways for asset managers to engage on RI-related issues such as with regulators, exchanges and industry associations.
  • Allocators will also consider firm-wide objectives and initiatives within their due diligence, but the investment process remains the key driver.

The SBAI would like to thank Jennifer Lau (Aberdeen Standard Investments), Marc van Loo (Transtrend), Emlyn Palmer (Albourne Partners) and Sapna Vir (New Holland Capital) for their contribution to the discussion.

 

Event Summary: Investing in Crypto Assets and Blockchain – The State of Play 


Innovation happens slowly, and then all at once. Crypto assets are innovative technologies but are they suitable for institutional investment? This was the theme of the SBAI’s institutional investor roundtable on 16 March. The discussion explored the navigation of the crypto space from an institutional perspective.

Key highlights included:
  • Whether an investor chooses to invest directly or indirectly in crypto assets or not, it remains important that allocators and asset managers understand the implications of these technological developments on the future of investing.
  • Bitcoin may be the most talked about crypto asset, but there are many other ways that institutional investors can access the crypto eco-system. These include hedge funds trading these assets and venture capital strategies investing in emerging companies in this space.
  • Challenges remain for institutional investors to feel comfortable investing in this space. There are still many open questions including the skill sets and analysis required for valuation, what role the asset will have in the portfolio (e.g., gold replacement, diversifier etc.), regulatory risk from new and changing regulatory frameworks and ESG concerns on the mining of these assets.

The SBAI will continue to explore this space with a follow up event looking at due diligence considerations for crypto investments. We would like to thank Elena Manola-Bonthond (CERN Pension Fund), Shaun Martinak (BCI), and Wei Xie (OPTrust) for their contributions to the discussion. 

 

Upcoming Events

  • 22 April 2021: Australian Institutional Investor Roundtable
  • 28 April 2021: Responsible Investment in APAC – The Challenges and the Expectations
  • 29 April 2021: Due Diligence of Crypto Hedge Funds 
  • 12 May 2021: Annual North American Stakeholders Forum 
  • 20 May 2021: - Benchmarking Alternative Performance 
  • 8 September 2021: Annual APAC Stakeholders Forum 
  • 15 September 2021, London, Annual General Assembly 
  • 2 December 2021, Montreal: Annual Institutional Investor Roundtable 

More events will be confirmed in due course. 
APPENDIX
Balyasny Asset Management L.P.
Balyasny Asset Management L.P. (“BAM”) is a global institutional investment firm dedicated to delivering consistent, uncorrelated absolute returns in all market environments. BAM is headquartered in Chicago, with offices in New York, London, San Francisco, Hong Kong, Connecticut, Singapore, Austin, Tokyo, Boston, Miami and Toronto. The firm was founded in 2001 by Dmitry Balyasny, Managing Partner and Chief Investment Officer, Taylor O’Malley, Co-Founding Partner and President, and Scott Schroeder, Co-Founding Partner. 

The fund started with a Long/Short Equities strategy and has developed over time into a multi-strategy, multi-PM model, which reflects a blend of strategies, including Fundamental Equity/Long Short, Macro, Equity Arbitrage & Credit investing. 

As of March 1, 2021, the firm has 99 distinct PM teams (excluding carve-out Portfolio Managers). 
Bluebell Capital Partners
Bluebell Capital Partners is a long term investor focused on European public equities, with a focus on companies in countries within Northern Europe where activism much more commonly involves constructive engagement, with a market capitalisation greater than €2bn and generally without a controlling or reference shareholder. Bluebell invests in attractive businesses at a significant discount to intrinsic value and seeks to increase shareholder value through constructive engagement.

The general framework is to look for value enhancement in four areas: Strategic re-orientation; Operational improvements; ESG; Balance sheet/capital structure. Bluebell will also work with existing shareholders of the target company, in order to build consensus around the key messages of the value proposition.  
Healthcare of Ontario Pension Plan (HOOPP)
HOOPP serves Ontario’s hospital and community-based healthcare sector, with more than 610 participating employers. Its membership includes nurses, medical technicians, food services staff, housekeeping staff, and many others who provide valued healthcare services. In total, HOOPP has more than 400,000 active, retired and deferred members.
HOOPP operates as a private independent trust, governed by a Board of Trustees with a sole fiduciary duty to deliver on the pension promise. The Board is jointly governed by the Ontario Hospital Association (OHA) and four unions: the Ontario Nurses' Association (ONA), the Canadian Union of Public Employees (CUPE), the Ontario Public Service Employees Union (OPSEU), and the Service Employees International Union (SEIU). The unique governance model provides representation from both management and workers in support of the long-term interests of the Plan.
LFIS Capital
LFIS was established in 2013 and is headquartered in Paris, France.  LFIS’ DNA brings together asset management and investment banking expertise. LFIS takes a quantitative, cross-asset, cross-instrument approach with particular expertise in derivatives instruments to identify, capture and risk manage opportunities across markets. LFIS’ areas of expertise include total return, multi-strategy investing and alternative investments, including ARP, credit and managed futures approaches. LFIS also offers dedicated solutions tailored to the specific risk return objectives and constraints of individual clients. LFIS’ global client base ranges from institutional to retail investors and extends across Europe, North America and Australasia. As of January 31, 2021, LFIS has $10 billion in assets under management. 
  
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