With experience in managing and servicing hedge funds, Jeff Levy* has witnessed the consequences of managers skimping on back-office infrastructure investment from both sides of the fence: investors tend not to take such managers seriously.
Levy founded global long/short equity hedge fund Turiya Capital in Hong Kong with chief investment officer Davide Erro in 2009. Previously he worked in prime brokerage sales at Merrill Lynch in Singapore during 2008 and 2009. During these years he saw first-hand how Asia hedge funds ran their businesses in a crisis, some more successfully than others.
“Having a robust platform for processing trades is as important as being able to differentiate your strategy,” notes Levy, chief operating officer at $2.5 billion Turiya. “Anything short of an institutional-grade robust platform that is marked by redundancy, scalability and built upon industry standard systems leads to negative perception from investors.”
It would then face the risk of being unable to raise enough capital to keep the business viable, he suggests.
With more than 20 years’ financial markets experience, Levy knows investors need to see that the people assigned to process trades and create policies for risk and compliance can demonstrate adequate knowledge of industry best practice.
Leading a two-person operations team in Hong Kong, Levy is in charge of risk management and compliance. About a quarter of his daily work is spent tackling risk. He relies on qualitative and quantitative input, and in concert with the CIO challenges the hypothesis backing each of the fund’s trading positions to check that Turiya is not taking undue risk in any sector, company or geography.
Levy views keeping track of risk and internal controls as such a key part of operating a fund that he refuses to outsource these functions to third-party providers or administrators.
“While you can outsource some form of risk measurement, it is extremely important that there is an internal risk manager capable of interpreting that data,” he explains. “The idiosyncracy of hedge funds cannot be easily understood by an external party.”
*A full profile of Jeff Levy appeared in the April issue of AsianInvestor.