Hedge Fund Insiders Article Series

Transcription

1 Hedge Fund Insiders Article Series Guidance for today s hedge funds from experts in prime brokerage, legal, real estate, insurance and technology Eze Castle Integration

2 UNVEILING OUR HEDGE FUND INSIDERS ARTICLE SERIES Hedge funds operate in a dynamic, evolutionary environment with mounting investor and regulator expectations, high-profile security breaches on the rise, increased due diligence and advancing technology innovations. To assist managers in staying abreast of hot topics, Eze Castle Integration is excited to share our Hedge Fund Insiders Article Series. The series brings together expert guidance from industry connoisseurs and covers a variety of topics spanning across prime brokerage, legal, accounting, cybersecurity and technology. Contributors to the Series include senior leaders at Eze Castle Integration, CBRE Group, Inc., Haynes and Boone LLP, TriNet, Wells Fargo Prime Services and Willis Group Holdings Ltd. ABOUT EZE CASTLE INTEGRATION Eze Castle Integration is the leading provider of IT solutions and private cloud services to more than 650 alternative investment firms worldwide, including more than 100 firms with $1 billion or more in assets under management. The company s products and services include Private Cloud Services, Technology Consulting, Outsourced IT Support, Project & Technology Management, Professional Services, Telecommunications, Voice over IP, Business Continuity Planning and Disaster Recovery, Archiving, Storage, Colocation and Internet Service. Eze Castle Integration is headquartered in Boston and has offices in Chicago, Dallas, Hong Kong, London, Los Angeles, Minneapolis, New York, San Francisco, Singapore and Stamford Eze Castle Integration

3 TABLE OF CONTENTS Building an Effective Hedge Fund-Prime Broker Relationship..4 Cybersecurity Risks and Implications for Investment Advisers 7 Exploring The Cyber Claims Landscape..10 Affordable Care Act (ACA) Changes Have Significant Impact for New York Finance Firms 13 3 Real Estate Trends Facing New York City Hedge Funds.15 Third Party Marketers: What They Are Not Telling You 18 Don t Overlook These 3 hedge Fund Technology Priorities...20 About Eze Castle Integration Eze Castle Integration

4 BUILDING AN EFFECTIVE HEDGE FUND-PRIME BROKER RELATIONSHIP By: Wendy Beer and Andrew Volz, Wells Fargo Prime Service All business relationships are driven by the belief that both sides will receive a mutual benefit that will allow for a long term sustainable partnership between the firms. For a prime brokerage /alternative asset manager relationship this principle is no different. An alternative asset manager ( AAM ) looks for certain services from its prime broker ( PB ): financing, access to balance sheet, securities lending, Capital Introduction, research, Corporate Access, technology and other services that are essential to the AAM as it deploys its strategy. PBs are looking to generate an attractive after cost return based on the revenue generated from the client vs. usage of financial resources such as balance sheet and capital. Driven primarily by post financial crisis regulatory pressures, banks and prime brokers are being faced with significant new requirements, which has changed the client interaction dynamic and has led to changes in balance sheet strategy, business objectives, and capital markets activity. While the fundamental nature of the business relationship has not changed between hedge funds and prime brokers, AAMs need to understand the impact of regulation on prime brokers and how best to optimize their impact on the prime brokers balance sheet in order to optimize the overall relationship. While Basel III is the primary driver of this change, perhaps the most significant shift in the PB model has been the introduction of the return on assets (ROA ) metric on a pre-tax basis as opposed to the pure top line revenue that previously drove the business. In summary, a balance sheet denominator has been added to the revenue numerator creating an ROA equation that now determines the health of a prime brokerage relationship. To be most effective, funds should understand how to minimize the balance sheet denominator as well as their impact on other relevant metrics: Liquidity Coverage Ratio (LCR) Net stable funding ration (NSFR) Tier 1 capital ratio High-Quality Liquid Assets (HQLA) Eze Castle Integration

5 OPEN COMMUNICATION IS ESSENTIAL When selecting a prime broker, AAMs should establish an open line of communication with senior management at the PB. Preliminary discussions should aim towards being as transparent as possible so that both parties develop a deep understanding of each other s methodologies and motivations, as well as pain points that may drive financing decisions. Maintaining this type of relationship and open line of communication will also foster a better understanding of trends and market color impacting the PB, and may serve as a resource for any impending changes that could impact the relationship. Further, transparent and open lines of communication will help the AAM reconcile the portfolio and leverage needs of the fund to the funding model of the PB, where feasible. selecting a PB should be based on comprehensive data and mutual understanding, not just financial considerations. In short, selecting a PB should be based on comprehensive data and mutual understanding, not just financial considerations. Establishing connectivity with management within credit and risk, in particular, can also be an effective strategy, especially in times of market stress. Having this form of dialogue with a PB facilitates the AAM s ability to utilize each PB relationship in a manner that maximizes the value of its portfolio to each PB, and make it a more efficient client. One example is how much leverage to use for a portfolio if portfolio margin is the most balance sheet efficient method of financing with a particular PB and is adequate leverage the AAM should not push for a more balance sheet intensive form of leverage for that PB (i.e., enhanced leverage). This requires an open dialogue with the PB to be familiar with legal entity structure and other items which might impact the PB s balance sheet efficiency. TRANSPARENCY BETWEEN HEDGE FUND AND PRIME BROKER IS KEY Transparency and an open dialogue are key components to a successful AAM/PB relationship. In addition to leverage, AAMs often have several touch-points with a counterparty, and may therefore utilize PB resources apart from financing and securities lending, such as capital introduction and/or business consulting services. An AAM needs to appreciate its impact to the liquidity profile of its PB, as well as their overall value to the institution holistically. Ongoing conversations may also help manage expectations as to what being a more efficient client means to its PB(s), as it may vary from prime broker to prime broker. This requires a fund to identify its portfolio balance sheet utilization and the overall ROA its business represents to the PB. It is also crucial to understand how each prime broker defines ROA as each counterparty may view it differently. Depending on the AAMs size and complexity of strategy, the AAM may need to allocate resources to a dedicated treasury function focused on maximizing efficiency and transparency across their funding counterparts. Treasury management starts with Eze Castle Integration

6 the fund having a thorough understanding of its balance sheet footprint, which includes transparency around prime broker s funding models, liquidity of collateral, impact of margin lock-ups, increased cost of funding due to regulatory initiatives and its ability to rebalance portfolio positions among prime brokers while retaining internal capital efficiencies. Another key component of treasury management that has surfaced over the past few years is the dialogue between funds and their PB s around enhancing portfolio efficiency by sharing lists of position needs / excess with their prime brokers to increase the internalization of the client s portfolio and enhance the return profile. Allocating shorts and longs in this manner increases portfolio optimization which leads to enhanced returns on balance sheet and capital especially for market neutral strategies employing significant leverage. Another way to optimize an AAM s balance sheet footprint is to work with PBs to make collateral allocation adjustments that create mutually beneficial optimization. In summary, the key to building an effective PB relationship is for AAMs to have frequent dialogue with their counterparties and to understand key financing return metrics that are important to the Prime Broker. In addition, AAMs should consider their overall wallet share with PBs and move towards a more holistic client relationship that tracks overall resource consumption including secondary resources such as Capital Introduction, business consulting, corporate access versus trading, and financing revenues generated. The overall wallet of an AAM should be considered when allocating commission dollars to those counterparties providing balance sheet in order to increase the attractiveness of the client from an ROA and return on equity perspective Eze Castle Integration

7 CYBERSECURITY RISKS AND IMPLICATIONS FOR INVESTMENT ADVISRERS By: Shelley Rosensweig, hanyes and Boone, LLP Cybersecurity risks pose an increasingly significant threat to investment advisers. In early 2015, the Securities and Exchange Commission s (the SEC ) Office of Compliance Inspections and Examinations ( OCIE ) identified its annual adviser examination priorities which reflect certain practices perceived to present heightened risk to investors and/or the integrity of US capital markets, one of which was cybersecurity compliance and controls. In April 2015, the SEC s division of investment management (the Division ) issued guidance (the Guidance ) [1] reinforcing cybersecurity as a priority for advisers and suggesting that advisers implement cybersecurity risk assessment plans, response strategies, and written policies and procedures. Included below are measures advisers should consider (some of which are directly from the Guidance) when addressing cybersecurity risks relating to their operations: Risk Assessment. Advisers should conduct assessments of: (1) the nature, sensitivity and location of information that it collects, processes and/or stores and the technology systems it uses; (2) internal and external cybersecurity threats to and vulnerabilities of the adviser s information and technology systems; (3) security controls and processes currently in place; (4) the impact should its information or technology systems become compromised; and (5) the effectiveness of the governance structure for the management of cybersecurity risk. Response Strategy. Advisers should create and test a strategy that is designed to prevent, detect and respond to cybersecurity threats, including: (1) controlling access to various systems and data via management of user credentials, authentication and authorization methods, firewalls and/or perimeter defenses, tiered access to sensitive information and network resources, network segregation and system hardening; (2) data encryption; (3) protecting against the loss or exfiltration of sensitive data by restricting the use of removable storage media and deploying software that monitors technology systems for unauthorized intrusions, the loss or exfiltration of sensitive data, or other unusual events; (4) data backup and retrieval; and (5) the development of an incident response plan (as discussed below). In addition, advisers should also consider arranging periodic external intrusion detection or penetration testing to ensure their cybersecurity defenses are adequate. Policies and Procedures; Training. Advisers should implement a cybersecurity strategy through written policies and procedures and training that provides Eze Castle Integration

8 guidance to the adviser s officers and employees concerning applicable threats and measures to prevent, detect and respond to such threats and to monitor compliance with cybersecurity policies and procedures. The compliance program of an adviser could address cybersecurity risk as it relates to identity theft, data protection, fraud, business continuity, as well as other disruptions in service. It is important not only to have policies and procedures in place, but to periodically confirm that these policies and procedures are being implemented. Advisers should consider educating clients about how to reduce exposure to cybersecurity threats to their accounts. Incident Response Plan. When implementing an incident response plan, advisers should consider: Advisers should consider educating clients about how to reduce exposure to cybersecurity threats to their accounts. Designating a coordinator and team that is available at all times for incident response (e.g., an adviser s general counsel, CIO/IT head, or compliance consultant). Determining the scope of the incident or breach (including determining what was lost, analyzing how confident the adviser s team is of the existing system s integrity, determining whether compromised data was encrypted, and interviewing employees and vendors about their responses and their system security, respectively). Preparing a post-incident report and analysis detailing the event and the adviser s response, and considering any applicable revisions to the adviser s policies and procedures in light of the breach and response. Taking immediate measures to prevent compromises and unauthorized access (including requiring periodic password changes and restricting use of the system by non-essential vendors and contractors). Determining the adviser s obligations under federal, state, local and/or international law (e.g., if there has been a breach, determining (in conjunction with counsel) if any governmental agency should be notified or if Form ADV needs to be updated). Considering whether the adviser s insurance company has to be notified. Vendor Management. Advisers should consider performing due diligence on their third-party vendors to confirm whether they have sufficient cybersecurity protective measures in place. Advisers may also consider outsourcing certain cybersecurity risk and protection functions to third-party providers. Insurance. Advisers should consider whether they should purchase cybersecurity-specific insurance to mitigate any potential losses and/or response costs in the event of a cybersecurity breach Eze Castle Integration

9 While it is critical to implement appropriate cybersecurity protocols in order to comply with applicable federal and state law, it is equally important from a franchise risk perspective as the costs associated with potential losses and responses to a breach can be devastating and significant. As it is not possible to anticipate and prevent every breach, advisers should implement the appropriate safeguards and response plans to lessen the impact of potential attacks on itself and its clients and/or investors. [1] US Securities and Exchange Commission, Division of Investment Management, IM Guidance Update (April 2015), No About the Author Shelley Rosensweig is a partner in the Investment Funds and Private Equity Practice Group in the New York office of Haynes and Boone, LLP. She structures and organizes domestic and offshore private investment funds. She advises clients regarding matters which include design, structure and operation of investment portfolios, distribution and marketing issues and commodities and futures issues. Shelley also assists clients with seed investments, the formation of managed account platforms and the organization of joint ventures. She advises investment advisory clients regarding investment products and services, SEC, FINRA and CFTC regulatory and compliance matters, as well as trading issues and employment matters Eze Castle Integration

10 EXPLORING THE CYBER CLAIMS LANDSCAPE By: John Mullen and Jennifer Coughlin, Lewis Brisbois Bisgaard & Smith, and talene Megerian and Kristin Zieser, willis Finex Claims & Legal Group The cyber risk landscape is rapidly evolving. Governments are facing an unprecedented level of Cyber attacks and threats with the potential to undermine national security and critical infrastructure. Similarly, businesses across a wide range of industry sectors, particularly those in the health care, retail and financial services industries 1, are exposed to potentially enormous liability and costs as a result of Cyber incidents and data breaches. Given the risk landscape, it is no wonder companies of all sizes continue to be subject to increasing data breach liability, both in the form of single plaintiff or class action lawsuits and regulatory investigations and proceedings. Negligence, breach of fiduciary duty and breach of contract are just some of the allegations that a company may face as a result of a systems failure or lax security that compromises the security of customers personal information or data. Plaintiffs in data breach class actions typically allege that businesses failed to adequately safeguard consumer information and gave insufficient and untimely notice of the breach. Companies may also face class actions from banks and credit unions seeking damages for administrative expenses, lost interest, transaction fees and lost customers. Settlements of data breach class actions can be exorbitant. For example, 25 class action lawsuits were settled in the wake of a retailer s 2007 data breach. Involving the theft of data related to over 45 million credit and debit cards. The settlement included: up to $1 million to customers without receipts; up to $10 million to customers with receipts ($30 per claimant); $6.5 million in plaintiffs attorneys fees; and three free years of credit monitoring, with total costs reportedly up to $256 million. More recently, in 2014, two major retailers reported that the total costs of data breach and related class action lawsuits (less expected insurance recovery) was estimated at $63 million and $191 million, respectively. And, this year, two major health care companies are separately facing several lawsuits as a result of data breaches that reportedly exposed the personal records of 80 million and 11 million people, respectively. While these matters have yet to be resolved, the anticipated costs of litigation and settlement may set records. REMEDIES SOUGHT Most data breaches result in first-party loss to the victim of the Cyber breach. For example, a business sustaining a Cyber breach or failure to protect confidential Eze Castle Integration

11 consumer information may incur the following expenses to remedy the issue (i.e., first -party costs): Costs to restore its computer system, remove viruses, malicious code, Trojan horses Costs related to loss of business (such as a denial-of-service computer attack on a company s network that limits the ability to conduct business) Costs to conduct a forensic investigation as to the cause of the unauthorized access Legal consultation costs or breach counsel to consult the business regarding all statutory requirements Costs to notify affected consumers, and costs to offer credit monitoring services to customers Costs to retain public relations assistance or advertising to rebuild a company s reputation after an incident To the extent that there was a Cyber-attack on the business network in an attempt to extort money ( Cyber extortion ), costs to settle such extortion demands, as well as costs of hiring a security firm to negotiate with blackmailers may also be at issue Companies affected by a Cyber breach may also face liability to third parties, which may result in defense costs, settlements, judgments and, sometimes punitive damages. Third parties bringing lawsuits against businesses for damages are increasingly seeking to expand the nature of injuries and remedies sought in light of early case law which determined that there was no injury in fact sustained by the Cyber breach and thus no standing to sue. The Federal Trade Commission (FTC) s Bureau of Consumer Protection has increased its investigations of data breaches on behalf of consumers given the rise in the number of organizations that rely on Big Data in their advertising and marketing campaigns. In 2014, the agency issued a press release announcing its 50th Data Security Settlement on behalf of consumers. One of those settlements involved the much publicized 2006 settlement with a data aggregation company wherein the company agreed to pay $10 million in civil penalties and $5 million in consumer redress for time customers may have spent to monitor and repair their credit following a breach that exposed their personal information Eze Castle Integration

12 In addition, the Federal Identity Theft Enforcement and Restitution Act ( ITERA ) provides that perpetrators of identity theft must reimburse their victims for the value of the time the victims spent repairing their credit records. The enactment of ITERA and the growing recognition in the business community that time spent repairing credit may constitute an injury in fact, may create an increased willingness of courts to find consumer standing to bring such actions and thus an increased liability risk to businesses. Increased regulation at federal and state levels related to information security and breach notification is expanding the legal avenues that may be pursued. Forty-seven states plus Puerto Rico, Washington D.C., and the Virgin Islands, have enacted laws requiring companies to notify consumers of breaches of personal data. Federal laws, such as the Health Insurance Portability and Accountability Act, the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act, have requirements to safeguard the privacy of personal information, and some states require notification to the state attorney general. Given this ever-evolving and regulatory landscape, companies should expect an increase in third-party liability claims led by federal regulatory agencies as evidenced by a March 2015 federal court decision involving a large hotel chain wherein the court held that the FTC has regulatory authority to enforce data security practices. 1 NetDiligence Claims Study, 2014 About the Authors John F. Mullen is the Managing Partner of the firm's Philadelphia office. Mr. Mullen is also Chair of the Data Privacy & Network Security Practice, Co-Chair of the CLM Cyber Committee, and Vice- Chair of the London Market Group. Jennifer Coughlin is a partner in the Data Privacy and Network Security Practice, and sits in the Philadelphia, Pennsylvania office. Jennifer focuses her practice on the representation on entities that have suffered or may have suffered a data breach. As part of representing this specific clientele, she works with law enforcement and independent forensic investigators in identifying the cause and scope of a data breach, identifies and engages vendors necessary to offer breach response services to both her clients and the affected population, identifies and satisfies state, federal, and international legal obligations entities may have as a result of a data breach, and defends entities against thirdparty and regulatory actions arising from the data event Eze Castle Integration

13 AFFORDABLE CARE ACT (ACA) CHANGES SET TO HAVE SIGNIGICANT IMPACT FOR NEW YORK FINANCE FIRMS By: Steve Edney, TriNet Beginning January 1, 2016 every U.S. firm with employees will be migrated to the small group market for healthcare benefits, as part of Affordable Care Act (ACA) mandated changes. Currently, in many states the small group market encompasses firms with 50 or fewer employees. But for policies that renew in 2016, this market will be expanded to include companies with up to 100 full-time employees. Companies with employees, who previously enjoyed the economies of scale benefits associated with being in the large group health care market, will become part of the small group market as of their first renewal on or after January 1, While this change will happen across the U.S., we believe its impact will be very significant in New York State. WHAT MID-SIZE BUSINESSES CAN EXPECT FROM ACA CHANGES: 51% Healthcare premiums, on average, will increase potentially significantly and the access to a wide-array of rich benefit plans these companies previously enjoyed is likely to be reduced. This is because New York State s small group healthcare market is community-rated, which means the demographics (for example, average age of employees) at a firm have no impact on small group market healthcare pricing. New York State currently prohibits insurance rate variations based on the demographic characteristics of the firm. This is in stark contrast to the rest of the country, where firms are priced based on their employee census - thus taking into account their demographic characteristics. We believe this will result, on average, in significantly higher healthcare premiums especially if the firm has a relatively young average age composition, as so many New York financial firms do. Small group market plans will be canned, meaning you will now have to select your benefits from a group of plans that the carrier offers and plans cannot be modified. This will likely cause firms with employees to lose some of the previous benefits they were able to offer employees. As a result, this change is likely to affect deductibles, out-of-network coverage, advanced infertility treatments and lower limits on certain services. Companies that have employees and a relatively young demographic composition will likely be hit with significant healthcare premium increases, as the small group community rates will be much higher than what they currently pay. By my calculations, some groups could see premiums increase as high as 50 percent for plans similar to what they offer today Eze Castle Integration

14 A real example of how one mid-size business avoided the negative consequences of ACA changes: A New York City business of 79 full-time employees recently came to TriNet concerned about how upcoming ACA changes would impact their mid-size business. They knew they would be subject to the community rated small group plans and that their new rates would become effective with their first renewal on or after January 1, TriNet conducted an analysis of what they could expect, using the New York small group rates that are available today. This particular employer would have seen a 48 percent premium increase starting January 1, 2016 coupled with a reduction in benefits when forced into the New York small group market. Because TriNet provides small and mid-sized businesses with access to rich Fortune 500-level benefits at prices they can afford, we were able to not only help this NYC business avoid a premium increase in 2016 but we were actually able to provide them with a 10 percent savings on their current rates. About the Author Steve Edney is Vice President of Sales for TriNet, where he focuses on helping financial services firms navigate the complexities of human resources administration. For more information on how ACA changes will impact your firm contact Maya Cohen, a Senior Vice President of Sales at TriNet Ambrose, at Maya joined Ambrose in 2005 as an HR Associate and has leveraged her growing expertise in client service, benefits, and strategic HR to improve the service offering to the Alternative Asset space. In her current capacity as a senior member of the business development team, Maya s primary focus is expanding Ambrose s Hedge Fund and Private Equity practice. Maya holds a BA from Brandeis University, where she majored in International Business and Near Eastern and Judaic Studies Eze Castle Integration

15 REAL ESTATE TRENDS FACING NEW YORK CITY HEDGE FUNDS By: Ben Friedland, Michael Movshovich and Taylor Scheinman, CBRE, As a team focused exclusively on advising hedge funds on their strategic real estate planning, we have observed several trends continuing to proliferate in the market. Below are three real estate-related issues relevant to all hedge funds. INCREASING CONSTRUCTION COSTS Construction costs for office interiors throughout New York City are rapidly increasing and firms that built space 5 10 years ago will find that overall expenditures for the same quality installation have increased 30 40% based on benchmark construction cost data across NYC. Although benchmarking numbers are not available specifically for hedge fund construction, high-end design details like custom millwork and architectural metal and glass are often a significant part of the design and are seeing the most rapid appreciation in cost, driving even more significant increases specific to hedge funds. Additionally, these premium and other critical trades such as HVAC and electrical are in high demand and can cause scheduling delays, pushing associated costs higher than ever. It is crucial for hedge funds to have an owner s rep / project manager advisor involved to ensure projects are appropriately budgeted from the initial due diligence phase, assessed on a project-by-project basis throughout the site selection process, and effectively implemented during the design and construction of the selected space. STRONG PREFERENCE FOR NEW CONSTRUCTION The average age of a Midtown building is 62 years old. Older buildings suffer from inefficiencies due to frequency of columns and column spacing, reduced light and air from smaller and less frequent windows, low ceiling heights, expensive overtime HVAC, and other infrastructure limitations. As a result of these challenges, demand for newer product is significant. However, challenging Manhattan development economics make assembling development sites and demolishing existing buildings prohibitive. Of the 20.5 million rentable square feet of available space in Midtown, only 11% is in buildings constructed after Pricing for the newest buildings is significantly higher than comparable older buildings (anecdotally 20 40%) and in multiple cases, those locations are outside of the traditional areas of preference for hedge funds Eze Castle Integration

16 Decision-makers leading the space search will find, however, that a significant portion of the rental rate premium can often be offset by leasing less space through improved efficiency and employee willingness to sacrifice the size of individual work spaces in order to enjoy the new building environment. Some of the newer buildings with significant vacancy like 7 Bryant Park and Tower 46 warrant a second look and in many cases, a test fit despite the possible presence of initial sticker shock. GEOGRAPHIC PARAMETER EXPANDING With a significant number of hedge fund principals now choosing to live in Tribeca, SoHo and other Downtown neighborhoods over more traditional locations on the Upper East or Upper West Side, geographic parameters for hedge fund offices have broadened. While historically many funds would consider alternatives to Midtown during the initial part of their searches, a lack of accessibility for investors and insufficient infrastructure almost always eliminated buildings south of the Grand Central submarket from consideration. Now, with several new buildings completed, hedge funds have alternatives with Class A infrastructure in these vibrant 24/7 neighborhoods. For example, following IBM Watson s commitment to anchor 51 Astor Place, a significant portion of the balance of the building has been leased to notable funds such as Tudor Investment Corporation, Claren Road Asset Management, Maple Lane and Spark Capital. Noteworthy submarkets with new and redeveloped buildings in the pipeline include Soho and the Meatpacking District, which are already home to prominent funds such as Anchorage and Two Sigma. Additionally, the rapidly growing tech industry has favored neighborhoods with classic and loft-like architecture, such as Union Square, Flatiron and NoMad. This has driven rising prices and landlords have invested to upgrade their infrastructure creating new buildings now suitable for hedge funds. While investor accessibility continues to be a concern for newer funds, more established groups have the flexibility to broaden their search. As more high-profile firms take space in the neighborhoods between Canal Street and 34th Street, we anticipate hedge funds will continue to expand outside the traditional Midtown market Eze Castle Integration

17 About the Authors Ben Friedland is an Executive Vice President in the New York Office of CBRE. Throughout his 15+ years at CBRE, Ben has developed exclusive long -term relationships with many of the world s leading hedge fund and private equity firms. Ben s niche industry expertise and client base has earned him consistent recognition as one of CBRE s top producers and frequent quotes in major news publications. Michael Movshovich is a First Vice President in CBRE s Midtown Manhattan office. Since joining CBRE in 2007, Michael has developed expertise and extensive track record advising hedge funds and private equity firms on their office space needs. Michael has distinguished himself as a trusted advisor and market expert within CBRE and the hedge fund/ PE industries. Taylor Scheinman is a Senior Associate in CBRE s Midtown Manhattan office. After spending 5 years at Newmark Grubb Knight Frank, Taylor joined CBRE in 2015 and specializes in advising hedge funds and boutique investment firms on their long-term real estate decisions. Taylor is an expert in both the traditional Midtown sub-markets as well as emerging areas south of 34th street that has become an area of focus for established funds Eze Castle Integration

18 THIRD PARTY MARKETERS: WHAT THEY ARE NOT TELLING YOU By: JD David, Meyler Capital So, I'm talking to a friend from the UK the other day when we stumble onto the topic of sports. Every time the word, football crosses my lips, he visibly cringes. Football? You mean that game that you play with your hands? Tell me, JD, how often during a football game does anyone but the kicker actually ever touch the ball with his foot? Yeah this argument is not new...football will always mean something different to Americans than everyone else in the world. But it made me wonder the same thing about our business. Why is it that capital placement agents refer to themselves as "Third Party Marketers"? Does this mean something different to people in these roles than it should to everyone else? Let's call a spade a spade there is about as much marketing happening in this industry as footballing in the American sport. Sure there is lots of relationship management happening and certainly plenty of overt selling. But marketing? Not really Why is that? Across every other industry, marketing involves brand building and creating engagement. It is not just what information is presented, but how it is packaged. In this industry, the term marketing typically refers to delivering unremarkable, text heavy PDFs to existing relationships. The kind of stuff that looks just like the other guy s stuff. The trouble in this industry is that there is A WHOLE LOT of other guys. Consider the auto business at best, there are a dozen legitimate competitors globally. Despite that, GM spends BILLIONS on marketing and advertising each year to Eze Castle Integration

19 support name recognition and enhance its brand, most in our industry spend next to nothing but yet somehow expect to stand out among 10,000 competitors. It does this by affiliating with people named Shaquille O Neal and Peyton Manning. People that its target audience aspire to be like. Just saying their names in the same sentence as automobiles and most people immediately know the reference to Buick. I am not at all suggesting that your third party marketer go out and make commercials what works for one industry is not necessarily appropriate for another. But the key is to find a way to be memorable (in a positive way, of course). The next time you look to hire an agent to raise capital on your behalf, ask how they distinguish between selling and marketing. Anyone can pick-up the phone the trick is ensuring the prospective investor remembers you the moment the phone is put back down. About the Author JD David is COO at Meyler Capital. JD has more than 25 years of trading and marketing experience while managing businesses for top caliber firms on both the buy and sell-side. During that time, he has developed a passion for building and scaling businesses and has been recognized for his ability to drive strategy and accelerate growth Eze Castle Integration

20 DON T OVERLOOK THESE 3 HEDGE FUND TECHNOLOGY PRIORITIES By: Mary Beth Hamilton, Eze Castle Integration Technology was historically an afterthought for many hedge funds and a check-thebox item at that. Many firms took the approach that they could get away with the bare minimum on the technology front, often overlooking the reality that technology today is a critical component to a hedge fund s daily operations. Today s hedge funds are generally embracing the role technology plays in investment management operations. In fact, in today s competitive landscape and with investors expecting more than ever from funds, technology has really emerged as a competitive differentiator and an asset that can help grow a firm s business. 2015, specifically, has posed its challenges for hedge funds and investment firms, as the Securities and Exchange Commission (SEC) and the investor community as a whole have highlighted cybersecurity as one of the most critical areas of focus. Beyond security, hedge fund startups continue to face challenges as they look to keep pace with their established competitors and make their own impression on the marketplace. From a technology standpoint, we ve identified three top priorities for hedge funds and investment management firms looking to find startup success. PICK THE RIGHT HEDGE FUND SERVICE PROVIDERS Experts will agree this is one of the most critical decisions a startup will make. When it comes to a firm outsourcing any of its needs whether that be technology, administration, accounting, etc. it is imperative that firms do their due diligence in choosing providers that can meet the unique requirements. In order to find success, firms should look to enter into trusted partnerships with key service providers engagements that offer open lines of communication, flexibility and ultimately trust and accountability. KNOW YOUR FIRM S VULNERABILITIES AND EXPOSURES Cybersecurity is the single most talked about area of technology right now, not only for hedge funds, but for businesses of all kinds. At a minimum, an investment firm and not just its IT provider needs to understand the potential risks that could affect the business and what safeguards are in place to protect those assets. With both regulators and investors asking thoughtful and intelligent questions with regard to cybersecurity, funds must have a thorough understanding of the threat landscape and employ comprehensive strategies to mitigate risk across the firm Eze Castle Integration

21 SELECT AN INFRASTRUCTURE SOLUTION YOUR FIRM CAN GROW WITH This is one of the most common mistakes new launches make. Many funds assume since they are just starting out, they only require the bare minimum in terms of technology. They are thinking about now; but what they aren t thinking about is what will happen down the road in two, three or five years. Some might argue that thinking too far ahead could be detrimental to the firm and set them up for imminent failure. The reverse, however, is equally as concerning. Odds are, if a firm is performing well after the first couple of years, it is going to outgrow its current IT system and, therefore, require a much more complicated transition. By taking the time initially to think through what the firm s needs will be down the line and implement systems that can grow along with them, the startup is in much better shape to minimize the time and money they spend on technology in the future. differently. About the Author Mary Beth Hamilton As vice president of marketing for Eze Castle Integration, Mary Beth Hamilton is responsible for marketing strategy and integrated marketing programs to drive awareness and demand for the company s IT services and solutions. With a decade of marketing experience, Mary Beth is skilled in guiding marketing efforts for services organizations. She holds a BS from Loyola University New Orleans and MBA from Boston College Eze Castle Integration

22 ABOUT EZE CASTLE INTEGRATION Eze Castle Integration is the leading provider of IT solutions and private cloud services to more than 650 alternative investment firms worldwide, including more than 100 firms with $1 billion or more in assets under management. We provide one global financial cloud platform that is complimented by exceptional service and operational excellence. Our Eze Private Cloud is built to deliver the high performance, applications and exceptional user experience demanded by the hedge fund and investment industry. Complete Managed IT Software as a Service Eze Managed Suite is a fully managed IT solution that provides flexibility and simplified IT operations. The hosted IT solution combines a robust, highly secure private infrastructure via the Eze Private Cloud with key business applications and professional IT management. Application Hosting Infrastructure as a Service Eze Managed Infrastructure provides clients easy access to an enterprise-grade private environment with the latest hardware and software without capital expenditures, expensive upgrades or ongoing maintenance and monitoring. It is ideal for hosting applications used by hedge funds and investment firms. Disaster Recovery as a Service Eze Managed Data Availability delivers a full range of business resiliency services including Disaster Recovery, Online Backup and Message Archiving. Via the Eze Private Cloud, your critical data and applications will be available and protected 24x7x365. To learn more about Eze Castle Integration, contact us at or visit Eze Castle Integration