The breakout sessions this afternoon at SALT have been particularly valuable. First up for us was “Man vs. Machine: A Comparison between Discretionary and Systematic Alpha Creation.” The panel was interesting in that the “vs.” in the title indicated there might be a debate… but the content was pretty one sided. The managers on the panel presented, pretty convincingly, the benefits of working with a systematic program, but a defense of discretionary programs never really emerged. We work with several discretionary managers, but we could definitely concur with the panel participants, which included Jerry Parker of Chesapeake and Chris Stanton of Sunrise Capital, in that discretionary managers, traditionally, are far more difficult to conduct due diligence on.
Next up, “A Broader Reach: How the JOBS Act Impacts Hedge Funds.” The JOBS Act has been a hot topic, with the big revelation being that hedge funds may be able to advertise themselves. What was uniquely intriguing to us is that the law creates yet another jurisdictional intersection in the regulatory landscape for managed futures. Programs that have been registered under several particular exemptions, or plan to register their fund under a 4.7 exemption with the CFTC for instance, theoretically, could be covered by the JOBS Act, but given that jurisdiction is being given to the SEC under the law, you have to wonder if we might be facing another regulatory battle royale as the agencies jockey for oversight.
The JOBS Act panel took a rather rosy outlook of the impact of advertising on the industry for those who are covered, embracing marketing concepts and case studies that seemed to have very tenuous parallels to hedge funds (Really? Selling Marlboro Reds is the same as a $5mm minimum investment hedge fund?), but there are some developments out there which indicate that hedge funds are gearing up for a digital push, at least. For instance, Victor Park of Alternative Assets pointed to the sweep we’ve seen in “keyword” domains in recent months (think www.startarb.com).
As far as which managers will be taking advantage of the developments, the panel was divided. Some believed that it would be small to mid-sized managers, whereas others believed the “big dogs” in the space would be the most aggressive participants. Hillel M. Bennett of the Partner Private Funds Group at Stroock & Stroock & Lavan, LLP, however, drew on similarities between the hedge fund space and law firms. There was a time where law firms were legally not allowed to advertise, and while the ban was eventually lifted, and we all see ads and commercial spots with 1-800 numbers everywhere we go, the bulk of lawyers, particularly more prestigious firms, still choose not to advertise because they “don’t see themselves that way.” In Bennett’s mind, we’ll likely see the same kinds of development in the hedge fund space, and while the interpretation will hopefully make sense of some of the more antiquated regulations on hedge funds, we simply won’t know the full impact until July.