RS: Briefly, you’ve been in the asset management business for a while, where exactly have you worked over the years?
RI: I’ve served all over the map. I started my career in Canada, moved to the Cayman Islands on a two-year contract and ended up staying in the Caymans for 12 years. My work has always been in the hedge fund industry, and the Cayman Islands were where I really cut my teeth in asset management.
During those 12 years, I was an audit partner and ran a tax practice out of Deloitte and did some prime brokerage, custody and cash management at Bank of Bermuda. At UBS, I was part of the fund administration team and provided directorship services at UBS.
RS: That’s great. You’ve joined EY to do a similar role. As the EY west coast practice is currently arranged, would you say LA or San Francisco is where most of the bodies are sitting?
RI: Right now, I think our most mature asset management practice would be San Francisco, but Los Angeles has probably been our fastest growing practice. We’ve also started to fine-tune our approach for the Seattle marketplace where we currently serve clients.
In terms of my role at EY, I am an assurance partner within the Wealth & Asset Management practice, but I also have a business development role. The audit partners are usually the lead relationship managers on the account, so while the specific delivery we provide is signing the audit opinion, it is also our responsibility to bring the strength and power of the global practice to clients for a variety of issues, such as regulatory and cybersecurity.
RS: Can you tell me a little bit about the west coast and the hedge fund business? What are the main differences in management and investors between west and east coast?
RI: The investor profile is very similar to what you see in other geographies, but the west coast has an ecosystem that is very unique to the Bay Area and Silicon Valley, with many individuals opening their own tech startups. There is a captive audience of venture capitalists there that want to invest in these startups and have made their investors a lot of money doing so.
Think of Jobs and Wozniak in the garage trying to figure out how to make a computer. The venture capitalists come in, the earlier investor, and once they get some revenue from the designing and sale of the computers, the private equity guys come in and provide growth capital. Then, they’re taken public and the hedge funds start trading their stock. There is a whole ecosystem here, and that ecosystem of portfolio companies, tech startups, well-established tech practitioners, private equity shops, venture capital shops and hedge funds is on fire at the moment.
Looking at the hedge fund industry on the west coast and in the Bay Area ecosystem, there’s tech bias on what those hedge funds trade. We also have many influential family offices which tend to become investors in the same industry the family made its money in, which is typically technology.
The main difference between the east and west coasts would be the focus on tech. The west coast ecosystem exists from launching and getting venture capital money to a public market or strategic buyer exit.
RS: Where have the managers learned their trade? Is the industry relatively young? Perhaps they come from the big investment banks on the east coast or they learnt from the D.E. Shaws and the Louis Bacons and come over from east to west?
RI: I think you have it right in that the majority would have at some point cut their teeth in the east coast, before moving out to the west coast to launch. However, there are some managers that are homegrown and grew up within this ecosystem. The ones that do trade tech typically have a tech person involved, whether it’s on the advisory council or they helped to found the firm. There’s always some association with a main player in tech, especially on the venture capital and private equity side.
RS: Have you any feel for a couple of the longer-established firms? How long has a typical long-short tech guy been running?
RI: Well-established firms can go back 15 or 20 years. For the smaller ones that come and go, the environment for the startups on the west coast is no different than anywhere else in the world – it’s very tough for themto get launched, raise capital, and get the track record that the institutional investors are looking for.
RS: You mentioned family offices. There’s such a lot of money that’s come out of the tech in Silicon Valley.
RI: The merge between the financial community and the tech community, an industry cleverly coined as Fin-Tech, is also very prominent here. An example would be the peer-to-peer lenders.
The Fin-Tech industry is growing out there, which is unique compared to some other geographies. Why this is important for the hedge fund industry is because hedge funds are looking for yield for their investors and ways they can do that with credit strategies. One of those credit strategies has become raising capital to provide assets to these peer-to-peer lending platforms.
All service providers struggle to figure out how they should serve these Fin-Tech companies. Since it’s a combination of the buttoned-down banking industry and the more casual tech industry, do you send banking guys in three-piece suits or the tech guys in their jeans?
RS: You mentioned Seattle. That’s a bit of an unploughed field for you. You’re about to get cracking there or has EY always had a presence there in hedge funds?
RI: For asset management, we’ve served many clients in Seattle, and will continue to serve clients there; we have been doing this with asset management specialists from the west coast. There are not a lot of single manager hedge funds in Seattle; there are more family offices, fund to funds and venture capitalists investing in tech. We are fine tuning our strategy for this marketplace which will likely include getting a local asset management presence established.