Focus on due diligence

Madoff

Man announced in December 2008 that RMF had approximately $360 million invested indirectly in two Madoff-related funds.

The Madoff fraud was a difficult experience; understandably, our clients are disappointed at the losses suffered.

We have met with investors involved in products that had Madoff exposure to discuss the circumstances of our allocation, and specifically the due diligence procedures we followed. Open communication has allowed investors to make a decision as to whether to continue or terminate their investment mandates. In a number of cases, we understand that investors have redeemed their investments as a direct result of the Madoff exposure. Other investors have performed additional due diligence to validate that the ongoing improvements we have made to our processes are satisfactory.

As part of our ongoing commitment continually to enhance and refine our due diligence procedures, we have made a number of improvements to our underlying processes and procedures. These can be summarised as follows:

• Heightening the scope of operational due diligence on a fund and manager where key service providers are affiliated either with the fund or manager, irrespective of the level and stringency of compensating controls;
• Additions to RMF's 'rejection criteria' for existing and future investments, which include transparency and custody-related considerations; and
• The use of managed accounts to create transparency and increase operational control over assets through custody, valuation and administration.

It is clear from the Madoff experience that our industry has been shaken by the fraud. Greater transparency and enhanced procedures in scrutinising managers are a necessary and obvious outcome of the situation.

Focus on Investor Services

Institutional investors have become increasingly familiar with hedge funds. As a result not only has their level of expertise grown but also so has their need for detailed, accurate and timely information.

Bernadette Behrens and Donato De Feo (RMF)

Demands of institutional markets

To keep up with the demands of ever more sophisticated clients, we have to evolve with them. Institutional investors rely on high standards of performance reporting and risk analysis. Our size and scale give us the ability to produce efficiently the level of reporting expected by institutional investors. Regular dialogue with distributors and institutional investors provides us with valuable feedback on products and strategies. In this way, our clients constantly challenge us to be better and we strive to exceed their expectations.

Reporting and transparency

The quality of investor services is a key due diligence point that investors look to before they invest in one of our products. Our products have net asset values that are published either weekly or monthly, and scheduled redemption dates. The timeliness and the accuracy of performance information are key factors to maintain investor confidence in their investment decision. This is particularly important in turbulent markets when regular and timely performance reporting is essential for our institutional investors and distributors to ensure that investors have the most up to date information on their portfolios. This allows them to make informed decisions and valid choices between alternative strategies.

Considerable resources have been dedicated to ensuring that our reporting is second to none. Whilst the majority of investors consider the content of standard reports sufficient, a growing number of investors need more information. For this reason the production of reports has been split to gain maximum efficiency. One unit takes care of producing standard reporting using the latest technology and most up to date reporting programmes. This means dedicated teams in each investment manager have the capacity to take care of customised reporting. The extra effort required for these reports is not wasted on a handful of investors. If we feel that other clients could benefit from the same type of reporting, it is added to the standard range.

Dedicated client service teams

Every institutional investor is unique - a Japanese pension fund has fundamentally different regulatory, performance, tax and other service requirements from a UK based insurance company. In recognition of this, Man has put specialised client service teams in place to meet these varied needs and provide prompt, accurate responses to the most demanding client requests and queries. From the outset, the philosophy of creating dedicated client service units was to provide more transparency to clients and more flexibility in responding to their demands. These units are integrated into the underlying investment businesses and act as the first point of contact with institutional clients as well as internal business functions such as product structuring and management, reporting, relationship management and the regional offices. We foster a culture of empathy, encouraging our people to put themselves in the client's shoes to anticipate their needs. In this way, we can ensure that we provide a consistently high level of service across the business and ensure we allocate resources where they are needed. Importantly, the expertise of these teams is available to the entire business and therefore benefits all our clients.