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Roadmap to Attracting Institutional Investors

02.06.2015 | Berdon Alerts

With the SEC issuing its 2015 investigational guidelines and announcing plans to hire more examiners, Berdon LLP hosted a 2.5.15 breakfast panel discussion to survey the new environment for attracting institutional investors.

“Today, risk management programs, compliance and reporting policies and operational capabilities can be as important as potential returns as institutional investors weigh their choices,” said the Berdon moderator. The program, “Roadmap to Attracting Institutional Investors,” was sponsored by Berdon LLP and Orical LLC.

Keynote panelist Seema Hingorani, former Chief Investment Officer at the $160 billion New York City Retirement System, gave attendees an insider’s perspective on the politics and pressures of selecting investment options in the public sector. Hingorani explained the difficulties encountered in the effort to modify New York’s “basket clause” which limits to 25% the percentage of investments outside a defined list of investments. This rigid policy places severe restrictions on selecting alternative investments and makes it more challenging to assemble an optimum investment portfolio.  A move in the New York Legislature to expand the restriction to 35% was recently vetoed by Governor Cuomo.

Offering guidance to investment managers, panelist James Leahy, Managing Member, Orical LLC, stressed the importance of engaging a qualified, independent third party auditor.  Leahy called these auditors a “breath of fresh air” essential to challenging the assumptions you have made.

Commenting on the due diligence process, Gregory Florio, also of Orical LLC and a former prosecutor, noted, “You have to know your own skeletons.” In light of the most recent financial crisis, Florio cautioned that background checks of significant personnel and an awareness of how you are perceived in the public has become increasingly important.

“Be careful of what you don’t know,” said Florio who added that your anti-insider trading policies may also come into focus.  

SEC-registered investment advisers who have custody of client funds or securities must safeguard those funds under the SEC’s “custody rule.” Leahy noted that there have been pervasive problems with advisors who don’t realize they have custody responsibilities. He further commented that while this issue can be addressed with a US GAAP audit, should the audit come back “qualified,” the SEC may still consider this a violation of the custody law.

Important Tips from the Panel

  • Internal valuations are least acceptable; qualified independent valuations are most acceptable. 
  • Disclosures are better than being blindsided.
  • Report all political contributions, regardless of the size of the donation.
  • Make sure your risk policies are defined and up-to-date.
  • Assess the strength of your operational infrastructure and mitigate weaknesses.
  • Tone at the top is crucial.




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