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SBAI Newsletter - June 2021
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In this month’s newsletter:

  • New Stakeholders
  • SBAI Responds to the SEC Request for Public Input on Climate Disclosures
  • Event Summary: SPARK: Seed Deals and GP Stakes – An Investor Perspective
  • Standards Corner: Conflicts of Interest in Parallel Funds
  • Upcoming Events 

New Stakeholders


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

Investor Chapter
  • Aviva Singlife Holdings Pte Ltd (Singapore)
  • Carnegie Corporation of New York (USA)

Signatories
  • Mingshi Investment Management Limited (China)
 

SBAI Responds to the SEC Request for Public Input on Climate Disclosures


The SEC released a public consultation on the implementation of climate disclosures for listed issuers. We view these disclosures as the first important building block in responsible investment regulation which often leads to disclosure requirements for asset managers. As such, we responded to this request for input highlighting the importance of adequate risk disclosure (including climate risk) to investors to enable well informed investment decisions.  

In our response, we highlighted five high level principles that should inform the SEC’s approach to developing regulatory guidance or rules on this topic: 
  • Consistency with Existing Frameworks: Making use of existing ESG disclosure frameworks.
  • Consistency with Global Regulators: Ensuring global consistency in ESG disclosure requirements to avoid market fragmentation.
  • Expansion beyond Climate: Consideration of other ESG risk factors and not solely climate.
  • Proportionality: Accounting for potentially limited resources of smaller companies that may raise barriers to entry.
  • Sequencing and Implementation: We positively note that issuer disclosure is the first step in advance of imposing downstream reporting on managers. 

We will continue to work on the broader topic of Responsible Investment through our working groups and events, providing guidance to managers and investors and sharing our insights with the regulatory community. This response follows on from our response earlier this year to the consultation published by the Hong Kong Securities and Futures Commission (SFC) on “Management and Disclosure of Climate-related Risks by Fund Managers”, which can be found here.  


Event Summary: SPARK: Seed Deals and GP Stakes – An Investor Perspective 


Finding a seed investor and the right seed deal is a challenge for small and emerging managers. At the second in our series of events for the SBAI SPARK Programme for Small and Emerging Managers, leading seed deal allocators provided their insights and advice on what managers can do to stand out, the due diligence process, and the negotiation of seed deals. Key highlights from this discussion are detailed below::
  • Standing out from the Crowd: Make sure to do your research on the seed investor. Ensure that any approaches are well researched and targeted. More successful approaches tend to be through a referral from trusted contacts, internal teams and prime brokers amongst others.
  • Due Diligence:
    • Investment Due Diligence: Typically, there is a lack of audited track records when assessing managers for seed deals. Seeders make use of other sources such as informal P&L attribution, compensation statements, reference checks, and paper portfolios. 
    • Operational Due Diligence: Whilst all operational questions need to be resolved in advance of launch, seed investors are willing to spend time working with managers to bring operations up to an institutional standard. One key element that should be in place early on is the presence of a strong COO and clear segregation of duties.  The Alternative Investment Standards provide a blueprint for developing an institutional platform and emerging managers are encouraged to sign up.  
  • Negotiations: Over time seed deals have become more likely to be bespoke and have a degree of flexibility in some areas
    • Non-Negotiable: Items such as devotion of time by the portfolio manager, personal investment from the investment team, and protective covenants such as transparency and investment guidelines
    • Negotiable: Items such as fees, working capital, lock-up periods, and exit strategies.
  • Other Advice: Our panellists gave a range of other advice to managers considering seed deals such as ensuring not to give preferential liquidity to seed investors, not hindering the ability to run the business, and being wary of overly aggressive terms.

We would like to thank our panellists Mark de Klerk (Investcorp-Tages), Yan Kvitko (CPP Investments) and Michael Pierog (Blackstone Alternative Asset Management) for their informative insights.

To find out more about this event or the SBAI SPARK Programme for Small and Emerging Managers please contact us at info@sbai.org.  
 

Standards Corner: Conflicts of Interest in Parallel Funds


Asset managers often run parallel funds or managed accounts for genuine reasons such as ESG requirements, individual investor investment restrictions, or the use of different fund structures for different target investors. These parallel accounts can raise conflicts of interest that need to be carefully managed and mitigated by investment managers. Our Research and Content Director was recently interviewed by Fund Operator Magazine discussing this topic and how the Alternative Investment Standards and SBAI Toolbox Memo on the topic can help managers put in place a framework for managing these conflicts:
  • Standard 2.4 requires the disclosure of any parallel accounts, any adverse material effects these accounts could cause, the aggregate AUM managed within the same strategy, the size of employee investment within the strategy, and the details of any employee only accounts.
  • Standard 17i requires that managers put in place a trade allocation and, upon request, disclose this to investors in a confidential manner.

The SBAI Toolbox Memo on Conflicts of Interest in Parallel Funds sets out a case study of the conflicts of interest that can arise and provides examples of additional measures that managers can take to strengthen their approach to managing and mitigating these conflicts.

The Fund Operator article published in June 2021 discussing this can be found here


Upcoming Events

  • 13 Jul 2021: Does ESG add Alpha? – A Systematic Strategy Perspective
  • 19 Jul 2021: Assessing and Evidencing Culture Investor Roundtable
  • 8 Sep 2021: APAC Forum
  • Oct 2021: London, Annual General Assembly
  • 2 Dec 2021: Montreal, Annual Institutional Investor Roundtable

More events will be confirmed in due course. 
APPENDIX
Aviva Singlife Holdings Pte Ltd
Aviva Singlife Holdings is a holding company established in November 2020, following the merger of Aviva Ltd (“Aviva Singapore”) and Singapore Life Pte. Ltd. (“Singlife”). The company brings together the best of Singlife’s digital innovation and the solidity of Aviva Singapore’s comprehensive solutions and quality advice. This iconic combination has established a home-grown Singapore brand focused on creating new possibilities for good within insurance and beyond. The merger announced on 11 September 2020 is one of the region’s largest insurance deals and the largest in Singapore, valuing Aviva Singlife Holdings at S$3.2 billion. 

*Aviva Singlife Holdings holds the Singlife and Aviva Singapore legal entities, which will continue to operate independently until the scheme of transfer of the Singlife business to Aviva Singapore is approved by the Singapore courts and completed in 2021.
Carnegie Corporation of New York
Carnegie Corporation of New York is one of America’s oldest grantmaking foundations and was established in 1911 by Andrew Carnegie to promote the advancement and diffusion of knowledge and understanding. In keeping with this mandate, the Corporation's work focuses on the issues that Andrew Carnegie considered of paramount importance: international peace, the advancement of education and knowledge, and the strength of our democracy. 
 
Andrew Carnegie endowed the Corporation with the bulk of his fortune, $145 million. As of 2015, the endowment stands at $4.6 billion. The Corporation is governed by a Board of Trustees and chaired by Thomas H. Kean. The Corporation is headquartered in New York City, but grantmaking is both national and international in scope. The Corporation currently supports four key program areas, including Education, Democracy, International Peace and Security, and Higher Education and Research in Africa.
Mingshi Investment Management Limited
Shanghai Mingshi Investment Management ("Mingshi") is a quantitative equity hedge fund headquartered in Shanghai, China. The firm was founded in December 2010 by Professor Yu Yuan and Professor Robert Stambaugh.

Mingshi combines academic expertise in financial economics with quantitative technology to implement market neutral and index enhancement strategies in the China A-share market.

Professor Yu Yuan is the firm's CEO and Head of Strategy. He oversees a team of 30+ quantitative research analysts and signal managers. Mingshi has a team of over 100 individuals with offices in Shanghai, Hong Kong, New York and Sydney.

Mingshi's mission is to become the industry leader in China quantitative asset management. The firm aims to bring international best-practice with respect to compliance, operations, execution trading and portfolio management to the China hedge fund industry.
  
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