Institutional Investor's Alpha Magazine - October 2007 - (Page 26)

Robert Steel anniversary as Treasury undersecretary this month, the September 5 hearing was an opportunity to share market insights from a nearly 30-year career at Goldman. Steel joined the ﬁrm in 1976 as an institutional salesman in its Chicago office, founded its European Equity Capital Markets group in London in 1986 and was elevated to head of equities in 1998 after moving to New York. In 2002, Steel was one of three executives — including current CEO Lloyd Blankfein — promoted to vice chairman by then–Goldman CEO and chairman Henry Paulson Jr. In 2006, just a few months after becoming Treasury secretary, Paulson again reached out to Steel, who had retired from Goldman in 2004 to teach at Harvard University’s John F. Kennedy School of Government, nominating the Durham, North Carolina, native for his current post. Unlike some critics on Capitol Hill who have blamed hedge funds for the recent subprime credit crisis, Steel insists that the problem is with the assets — in this case questionable mortgages and the securitized debt products created from them — not with the holders of those assets. To address potential weaknesses in the hedge fund sector, the President’s Working Group (PWG) issued a report in February calling for — ERIC MINDICH, FOUNDER hedge funds, prime brokers, ETON PARK CAPITAL MANAGEMENT regulators and other related parties to act responsibly. To Steel, the report was a call to action. The idea was to create a broad set of principles that would guide the hedge fund community, the goal being to limit systemic risk and to protect investors. Steel says the message from the Treasury has been consistent all along. In June the PWG — which includes representatives from the Treasury, the Federal Reserve Board, the Securities and Exchange Commission, and the Commodity Futures Trading Commission — decided to create two best-practices groups, one made up of investors and one of managers. By late September they were formed. The investor group is led by Russell Read, chief investment officer of the $247 billion-in-assets California Public Employees’ Retirement System, in Sacramento. The managers group is chaired by Eric Mindich, founder of New York–based hedge fund firm Eton Park Capital Management. Before leaving in 2003 to start Eton Park, a hedge fund that manages $8 billion in assets, Mindich coheaded the equities division at Goldman after Steel was elevated to vice chairman. Mindich says there’s already a lot being done on hedge fund best practices — such as the work put out by the Greenwich Roundtable, a nonprofit research and educational organization for investors — and that this material will be considered in crafting the new Treasury-backed guidelines. His group, he adds, will seek to recommend transparency of the right kind. “Transparency has a mom-and-apple-pie kind of feel to it,” says Mindich. “The question is, What kind of information is meaningful and actually serves a purpose?” Steel agrees with his former colleague’s assessment of hedge fund transparency. In late September, Alpha Contributing Writer Richard Meyer met with the undersecretary at his office in Washington, D.C., and spoke with him about transparency, among other subjects relating to hedge funds. Alpha: A lot has happened since the President’s Working Group issued its report in February. In hindsight, was the report too tempered? Steel: The principles and guidelines we issued in Febru- “Transparency has a mom-andapple-pie kind of feel to it. The question is, What information actually serves a purpose?” ary highlighted the benefits these investment vehicles bring to our markets, as well as two key challenges: investor protection and systemic risk. I feel as good or better today about how we addressed those challenges as I did then. In terms of what’s changed, I don’t think the market conditions make me think anything other than that those principles were right on track. They are not an endorsement of the status quo. They are meant to be a guidepost going forward. It is our goal to bring the guidelines and principles set out in the PWG report to life with best practices through the two groups announced in late September. On one side are investors of a very prestigious type. They are pension funds. They are endowments. They are public funds. On the other side are the managers, a similarly prestigious group. And the question to both of them is, What should be the best practices? I am especially excited about the investor side of this. Now what we are talking about is investors’ saying that if you are going to invest in hedge funds, you are the professionals, this is what you should do and this is what you should expect, as part of your due diligence responsibilities. What guidance did you give the two groups? We think that their work should build on the principles and guidelines we released in 2007. They should really lay down the road map for best practices. Clarity, practicality and usefulness should be the goal. One of the exciting aspects is that these are evergreen groups. They are going to develop these guidelines between now and the end of the year, and then they will meet twice a year going forward, so the guidelines will keep evolving as the marketplace does. The commitment is to always improve, never accept the status quo and always keep looking ahead. Has the recent turbulence in markets brought a sense of urgency to the process? This is something to which we were strongly committed 26 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2007

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2007

Institutional Investor's Alpha Magazine - October 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Applied Knowledge The Good Guys: Autism Advocate Interview: Nerves of Steel Cover Story: Ivy League Education Alpha Awards: Top Service Providers: Trying Times Strategies: Passage to India Profile: The Oracle of Irvine Alpha Bytes: Futurama Research Center: Funds of Funds 50 Unhedged: Commentary: Crisis? What Crisis?

Institutional Investor's Alpha Magazine - October 2007

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