Institutional Investor's Alpha Magazine - October 2007 - (Page 73)

ACCOUNTING AND LEGAL SERVICES FOR HEDGE FUNDS BY ERIC LAURSEN Growing Business, Greater Demands on Service Providers “Legal services for hedge funds don't stand still,” says Adrian “Gus” Pope, partner at Cayman Islandsbased Maples and Calder. “The legal problems of two years ago are different from last year's. You've got to be completely current with the issues and understand them if you want to serve your client well.” T he same applies to accounting services for hedge funds, a market that's expanding and evolving at a blistering pace. A decade and a half ago, “nobody even knew the term 'hedge fund,'” notes Howard Altman, co-managing principal at accountants Rothstein Kass & Co. in New York. Today, the global hedge fund market totals about $2.5 trillion. About $1.6 trillion of that is in the hands of some 7,500 US hedge funds. This fast-growing business is extending its investment reach into Asia and Europe. Increasingly sophisticated and esoteric investment practices, the search to diversify their sources of capital and a wave of acquisitions by Wall Street powerhouses have altered the profile of the business itself. Larger hedge funds, as a result, are becoming more institutional in character, taking on some trappings of traditional investment banks – and exciting regulators' attention. All of which creates new demands for attorneys and accountants and is refocusing the criteria that hedge funds use to select their providers. On the legal side, they want firms to have a global reach and well-developed capabilities in M&A and alternative investment transactions. That includes deep market awareness – almost on the level of the hedge fund managers themselves. Both legal and accounting firms are emphasizing their regulatory practice, including key attorneys' participation in SEC and Treasury Department working groups and congressional testimony. With government and private individuals filing more cases against hedge funds, law firms are working harder to market their litigation services to hedge funds and to make sure they can work seamlessly with the firms' other practices. accounting relationships. As Sarbanes-Oxley practices ripple out into the universe of private companies, hedge fund managers and sponsors increasingly are exercising tighter control of their financial statements from outside firms that formerly did the bulk of the preparation work. At the same time, stricter auditing standards require outside accountants to report any deficiencies they detect in corporate governance directly to management and those in charge of governance. Large funds demand that their accountant have a strong valuation arm that can help determine if a proposed acquisition is acceptable and makes business sense, notes Robert Castro, managing partner at BDO Seidman in New York. More firms are offering forensic research, which helps hedge fund clients find short ideas by picking apart the deficiencies in companies' financial statements. And increasingly, firms find they must maintain a tight network of international relationships as US-based hedge funds expand into overseas markets. As their needs become more urgent, both accountants and law Demanding a New Breadth and Depth of Service Once consumers of legal assistance mainly for launching their funds and making required reports to investors and regulators, hedge funds today – especially the largest – are demanding a new breadth and depth of service. “Our hedge fund clients use 25 different practices across our firm on a regular basis,” says Bill Kerr, a partner with Sidley Austin in Chicago. At both large legal and accounting firms, this can include the family office, where hedge fund entrepreneurs looking to plan their exit now frequently come for advice on transitions, including IPOs and sales of their businesses. A combination of investor demand and regulatory attention is pushing hedge funds to revamp aspects of their outside October 2007 • This Sponsored Report was prepared by the Special Projects Department of Alpha and written by Eric Laursen, a journalist based in New York.

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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