Singapore-based hedge fund research firm GFIA has announced a business cooperation with London-based consultancy Laven Partners that could be the first step to a full strategic tie-up.
GFIA was established in 1998 to provide mostly qualitative research to professional investors on Asian and emerging market hedge funds and absolute return long-only funds and their managers.
Its initial focus was broad Asia (Japan, China, India and Australia), but that remit has since stretched to include Latin America and frontier markets led by Moscow, Dubai and South Africa.
The DNA of Laven Partners, meanwhile, whose clients are mostly Europe-based, has tended to be due diligence – a service in increasing demand in the hedge fund industry globally.
The purpose of this collaboration is to capitalise on operational and geographical synergies between the two firms, says GFIA’s founding principal Peter Douglas. The arrangement will see each firm continue to bear its own costs, but share in revenues for projects it works on together.
“We are finding that the balance of demand between qualitative research and formal due diligence in the hedge fund industry is changing dramatically, and we need to spend more time on due diligence,” confirms Douglas.
He notes that Laven has a more formal and scalable due diligence process that has been put through an ISO quality control exercise, so GFIA aims to piggyback on that, as well as Laven’s client flow.
Douglas explains that both GFIA and Laven will exchange staff over the next quarter to learn more about each other’s areas of expertise, with Laven eager to become more familiar with the environment in Asia.
While Douglas won’t be drawn on whether this tie-up might lead to a closer strategic partnership in future, one source says: “If this business cooperation works well, it wouldn't surprise me if Laven’s due diligence and GFIA’s fund research operations become more closely integrated over time.”
The hedge fund industry has become more regulated in the wake of the global financial crisis in 2008, placing an increased emphasis on compliance and operational best practice.
One of the fallouts from the crisis has been the rapid deceleration of the fund of funds industry, which has been matched by a corresponding increase in institutions preferring to allocate directly to hedge funds (rather than via fund of funds).
The argument for institutions, banks, family offices and ultra-high-net-worth investors to outsource due diligence is that it is a time-consuming and specialised process.
Further, GFIA will look to capitalise on Laven’s experience in working with managers to set up compliance processes, more commonly targeted at managers with a smaller headcount.
Asked how GFIA and Laven might hope to differentiate themselves against well-established compliance advisers, Douglas responds: “Laven’s pitch is that they have honed their process in London, which is arguably one of the most financially regulated jurisdictions globally.
“Secondly, [Laven] have a great deal of expertise in European structures such as Ucits, which seem to be seeing a lot of demand from Asian managers. So being able to help Asia-based managers with the Ucits set-up and compliance I suspect might be quite useful.”
But he admits that compliance is an increasingly competitive arena for advisers, especially in Asia. Kinetic Partners and ACA Compliance Group are among a number of firms looking to set up in Asia this year to gain a more complete understanding of the international regulatory landscape.
“The regulatory picture globally is more homogenous,” says Douglas, “and I think we can expect to see a lot more demand for advice on regulatory compliance and operational best practice in Asia. That is something we are hoping to tap through this tie-up.”