The challenges of the last few years have brought big changes to the hedge fund industry, and with those have come changes in the way service providers handle the increasingly complicated demands from hedge funds and also the increasing demands on hedge funds. This has been especially true for the compliance sector, which has grown steadily as regulators have turned their gaze more and more on hedge funds.
IMS Group were one of the early movers in the compliance world. They were founded in 1997 by Scott Wilson, and the firm grew organically from then, becoming one of the leading compliance firms in a relatively new field – previously the work had mostly been done in-house or as part of a broader legal offering. IMS saw that this was not necessarily working for companies big or small. The smaller firms did not have the expertise, and larger firms wanted to know that they were following industry standard practice.
“Managers want the independence that we can bring, the understanding of what other firms do,” says Stephen Burke, managing director of IMS.
“Because we see so much, it’s very easy for us to give them what the state of good practice in this particular area is, giving them the comfort that what they are doing is right because that is what everybody else is doing, and that it complies with the regulations.”
A compliance core
IMS Group’s core offering of compliance consultancy extends throughout a fund’s lifetime. They can help funds from before authorisation, and can even offer the capability to market a fund while it awaits approval, using their hosted regulatory platform, Mirabella, which they fully acquired last June. Mirabella allows a manager to start operations with all of the relevant FSA (soon to be FCA) and SEC permissions, while they wait for authorisation proper.
Beyond authorisation IMS offer the capability for a firm to diarise their compliance requirements as well as updating them on the requirements for regulation, which are changing at a rate never before seen. This is done on proprietary software developed in-house, which offers a consistent platform to deliver their expertise and to notify companies of their specific compliance issues. A joint venture with Buzzacott Chartered Accountants has also made tax compliance
In 2010 the opportunity to grow further came with an investment from Sovereign Capital, a private equity fund who saw a gap in the market for a larger compliance firm. As Burke says, “They saw the opportunity to create a consolidation of firms, to produce a business that was bigger, more professional, more global, more capable than all of the constituent parts.”
This backing allowed for the game-changing merger with HedgeOp, a New York compliance firm founded by Bill Mulligan. This was completed just over a year ago, in January 2012. Under the new leadership of Michel van Leeuwen, CEO after Wilson moved on, the firm has been running as a single entity operationally for a while now; the next hurdle is the full merger from an outside perspective.
Both parties saw it as a natural match between two firms whose offerings were broadly similar. “What we found in HedgeOp,” says Burke, “was a firm which was, as people said at the time, scarily like us in terms of the way they think, the way they operate, the overall culture.
This similarity made the structuring of the company very easy; the New York and London offices are roughly the same size, and there is a lot of what Burke calls “knowledge share” between the offices, although they have some slightly different emphases. This is the nature of compliance; it needs to be fine-tuned to different jurisdictions. In the US, for instance, personal account trading (often for a personal pension fund) needs to be monitored more rigorously than in the UK. The merger with HedgeOp has made IMS capable of handling these detailed differences.
A global offering
An important part of the improved offering to clients is the ability to seamlessly move to a new regulatory regime if a client wishes to expand, without the need to go elsewhere. IMS have ensured that this need will not catch them out. They can deliver expert advice if, as often happens, a new opportunity requires compliance with a completely different regime.
“We rarely see a start-up now that isn’t going to become an exempt reporting adviser [in the US]– or they may need to become CFTC-registered,” says Burke. “The validation of the business model is that. Flip it round, in six months’ time we will be having similar conversations around AIFMD.”
The joining of the two firms matches the broader movement towards a truly global hedge fund industry. Geographical boundaries are being heeded less and less, as funds look to find alpha across the world. The requirement to comply with foreign regimes will only increase in the future; indeed, it is relatively uncommon for a fund to stay in one country. The ability to offer expertise across different jurisdictions marks out IMS’s service.
“Regulation is international now,” says Burke. “That’s the most profound change since I arrived when basically what happened in the US happened in the US, what happened here happened here, and you could almost close your eyes to it. These days it’s not like that anymore. Very few firms are purely domestic. Most firms will need international support. That’s why people are coming to us.”
IMS also put great weight on being a client-driven organisation who can respond to new needs from clients. One of the requests they were repeatedly hearing was the ability to comply in Hong Kong. IMS listened to this, and have now, since early March, opened a Hong Kong office, headed by Jonathan Currie, which will offer the capability to comply with the SFC’s requirements there.
The aim is to offer a consistent service across the world, and to provide the same level of compliance expertise that managers have come to expect in Britain and in the US. As Burke says, “There is a strong desire in Hong Kong in particular for the standards and rigour that they see in other markets to be introduced to that market, for international players in particular.”
Boutiques of all sizes
These developments and expansions are all very important to the IMS offering, but they stress that this does not distract them from their core service. Their global structure offers them a broad range of expertise, and the ability to deliver for the very largest clients, but start-ups are always an integral part of their business.
“We still service clients who are at the very outset of their journey to become the global hedge funds of the future,” says Burke. “We tune our service to that, but we can grow with them in a way that other firms might not be able to do.”
Burke describes their business as one which caters to “boutiques of all sizes”. This might sound paradoxical, but it is emblematic of the way in which IMS seek to set themselves apart: they have global capability, but can offer the same level of service to the start-up.
“It’s the way of thinking, it’s the way of working that is important, not the size of the business,” says Burke. “We have the capability to deal with businesses of all sizes, but we still have the boutique way of working; we’re working for the proprietors, we’re working for the people whose business this is.”
Our own cooking
Compliance is not something that will ever go away, which is why IMS put great emphasis on the future, in terms of their own business, their clients’ businesses, and the industry as a whole.
Since 2000 IMS have had a recruitment division as an important part of their forward-looking plans. They do not head hunt, but due to the relatively specialised nature of the industry, they are in a strong position to match compliance officers to a firm. This is also beneficial to IMS; extensive knowledge of the personnel means that they themselves can hire the best. As Burke puts it, “We eat our own cooking in that respect.”
Another way in which IMS position themselves in the centre of the compliance community is their education and training programme. As Louise Yates, marketing and communications director, explains, “Education and training grew always organically, but we strongly believe that the compliance culture must start from the top and work its way down and education can enable this.”
To this end IMS have a number of different methods. Open seminars and publications are important in helping to set the public agenda – something in which they take a great interest –
but the main method is working to give clients the training they need to understand the compliance environment.
Yates explains: “We really haven’t changed in what our objectives are and have always been: to educate and to ground theunderstanding of compliance for the firms that we work with.”
The additional services have all grown from the same compliance core which defines IMS; they supplement the firm’s main focus, rather than distracting it. As Burke says, “You can go in lots of different directions because the thing about compliance is that it’s a must-have service which sits in the middle of the buying desire. To start a firm you need a compliance consultant to help you.”
In the next year the AIFMD will be the big driver of regulatory change. Burke says that “The AIFMD is going to tick up the obligations quite significantly on European managers which will have an impact on global expectations in due course.” However, he also believes that UK managers should also be cautious about the FCA’s new mandate.
“The main difference is the FCA is a themes-focused regulator, which is going to have, over time, a relatively significant impact on the way in which the industry is regulated,” says Burke.
“The hedge fund community generally needs to be aware of the likelihood that it will be called to account, and hence it needs to be more on the front foot in terms of ensuring that it’s paying attention to what the developments are.”
It is this proactive, responsive approach to compliance which IMS Group places at the centre of its service. IMS have positioned themselves in the centre of the global compliance community, and are always looking for new ways in which they can help clients to fulfil their regulatory obligations.