Thumbs Up: SEC Gives a Qualified “Like” to Third-Party Testimonials


Once again, technology has leapfrogged regulation. The rise of social media has compelled the SEC to clarify and update rules written when the media landscape was more black and white – as in newsprint.

The rule in question is 206(4)-1(a)(1) of the Investment Advisers Act of 1940, the “testimonial rule.” It prohibits investment advisors from using client endorsements in their advertising. Testimonials are inherently misleading, the SEC previously ruled, because they selectively use favorable comments while editing out the unfavorable.

Fast forward to the age of Yelp and other user-generated review sites, where opinions both negative and positive flow freely and often vociferously. Consumers increasingly turn to review sites and online communities for help in selecting everything from a car to a restaurant, or even a doctor or lawyer. So why not an investment advisor?

Of course, review sites are not entirely immune to deception and manipulation – which is what worries the SEC. That’s what led to the latest guidance on the testimonial rule as it applies to social media. The SEC ruled that advisors may refer to favorable comments in their advertising, provided the comments originated on an independent site where both positive and negative views are freely aired. The advisor cannot exert any influence on the site, such as paid advertising, nor can it offer any favors to the client, such as a fee discount, in exchange for a favorable review.

The guidelines are neatly summarized in this Investment News article. If you have a little more time, you can read the actual SEC Guidance Update.

Miguel Rodriguez leads Advent’s social media program. In his role, Miguel is responsible for Advent’s social presence including Twitter, Facebook, LinkedIn, YouTube, and Advent’s blog. Follow Miguel on Twitter.

Posted in Advisors, Compliance, Social Media, Trends

Farewell Spreadsheets: Five Drivers of Technology in Private Equity

5A couple of months ago I attended a private equity operations and compliance conference put on by the good folks at Financial Research Associates. As someone bred in the world of hedge funds, the highlight of this great event was the session on “Excel best-practices”, which opened my eyes to an adorably quaint world – much like I imagine a vacation to Wales.

Sadly, as with other asset classes, the glory days of paper and spreadsheets are numbered. The future looks like a world of systems, controls, automation and transparency – more like, I don’t know, Hong Kong.

There are five main drivers of this transformation: regulation, adoption of industry standards, complex new business models, investor demands, and hybrid models.

1.       Regulation

In the US, Dodd Frank has turned most managers into RIAs. Enter the dreaded SEC Exams and annual reviews under rule 206(4)-7! This means arduous data verifications and operational risks that now show up on the radar across the firm. These burdens and risks can be greatly reduced by strong recordkeeping and the ability to quickly produce backup for all reported numbers

2.       Standardization

The Institutional Limited Partners Association (ILPA) has introduced best practices and standard reporting templates. Though far from universal acceptance, the emergence of standards presents the opportunity for scalable solutions.

3.       Complex business models

Spreadsheet multiplication has been driven by a slew of calculation variations. Exceptions by investor or deal make it difficult to reconcile. These include realized deal vs. European waterfall, subsequent close workflows, hurdle, catch up, carry-sharing, clawbacks, and more. The nested IFs and VLOOKUPs are getting pretty intense.

4.       Increased Limited Partner Demands

LPs used to be happy with a wink, a nod and some VBA macros. Now they expect transparency, reproducible calculations and dynamic reporting on valuations, exposure, fees and expenses.

5.       Hybrid Fund Structures

PE structures are increasingly being used for hedge fund strategies, particularly credit/distressed. This expands the market for PE systems to new participants who are used to automated solutions. And it has brought vendors of hedge fund systems into contact with new PE opportunities.

At this point in the presentation, I was feeling proud to be part of the solution – Geneva World Investor supports both PE managers and funds that hold PE fund allocations.

The investment world is getting more complex each year, so I’m glad to be part of a team that does its best to make a client’s trip from Wales to Hong Kong as smooth as possible.

Chris is in charge of explaining, demonstrating and validating Advent’s solutions for our prospective clients. Previously he did real work, implementing Geneva at hedge funds in the US and internationally.

Posted in Advent Software, Compliance, Trends

Socialize It: SEC OKs Company Announcements on Social Media

shareAfter several months of inquiry, the SEC last week declared that public companies can make announcements via social media outlets such as Facebook and Twitter, provided they tell investors that’s where to look for company news.

At issue was whether saying anything on social media amounted to selective disclosure, leaving out investors who aren’t on any networks.  Even casual remarks by a CEO can trigger a jump in a company’s stock price. The SEC’s inquiry began last July after the head of Netflix posted on his personal Facebook page that the company’s monthly online viewing had passed a billion hours – information that was not mentioned in a company press release on the same day.

The SEC took no action against Netflix, but instead issued guidelines reflecting the new reality that growing numbers of people get their news and information from social platforms. Read all about it as reported in the press, or check out the SEC’s official press release.

Miguel Rodriguez leads Advent’s social media program. In his role, Miguel is responsible for Advent’s social presence including Twitter, Facebook, LinkedIn, YouTube, and Advent’s blog. Follow Miguel on Twitter.

Posted in Compliance, Social Media, Trends

Hedge Funds: Who’s the Richest Of Them All?

HFCan you name the richest hedge fund manager in the world? According to Forbes, there are now 46 billionaires worldwide who made most of their fortunes from hedge fund trading profits and fees. The wealthiest among them has an estimated net worth of $23 billion and personally pocketed $4 billion last year alone. Based on absolute profits, the Financial Times dubbed him the “greatest hedge fund manager of all time.” See who leads the pack, along with the complete list of the world’s hedge fund billionaires.

Ken Overholt manages Advent’s content and thought leadership programs. He’s been thinking and writing about financial services topics and investment management trends for over 20 years.

Posted in Advent Software, Hedge Funds

1+1=3: The Power of Alliance


At our previous two AdventConnect user conferences, Pete and I have shared that we are re-doubling our efforts to be the best at what our client’s expect from us. With that comes the recognition that we can’t be the best at everything our clients need to be successful. If our clients need something, and we don’t feel we are the best to deliver it, we will enter into an alliance with a company who is best-in-class for that specific offering.

This isn’t at all uncommon in the tech industry. Apple excels at product design and marketing, but relies on a vast ecosystem of alliances to build and deliver its products, from component makers to software developers to offshore assembly plants, as well as co-branding agreements like the Nike + iPod. Few companies can be successful trying to go it alone or reinvent the wheel.

We are more open than ever to collaboration with companies who are the best at what they do and whose capabilities complement ours. To give you a few examples:

  • At the end of last year, we signed an agreement with G2 FinTech, best known for the high-performance TaxGopher tax analysis engine for cost basis adjustments and compliance. TaxGopher will now be the wash sale module for our Geneva portfolio management product, enabling us to provide clients with the tax analysis they need.
  • We recently also joined forces with Vancouver-based FINCAD to integrate its industry-leading derivative pricing analytics into our portfolio management products. This will enhance our clients’ valuation and risk management capabilities for derivative instruments that are otherwise hard to value accurately.
  • We have a long-standing relationship with Chicago Clearing Corporation (CCC), whose class action claims filing solution integrates with our Axys, Advent Portfolio Exchange, and Black Diamond platforms. CCC’s solution makes it easy for advisors to file claims on behalf of their clients who may be owed money in securities class action settlements.

In each of these cases, it made more sense to team up with the market leading provider than to expend our resources trying to create our own solution and risk coming up short. We don’t need to be the best at everything ourselves, but we are committed to bringing our clients the best solutions for their needs, whether from us or from third parties. Our network of alliances is extensive and growing. It’s simply smart business and, ultimately, the right thing for our clients.

Todd sets the company’s long-term technology and solution vision. It’s his job to make sure our solutions incorporate the best technology innovations to meet our clients’ needs and are easy to adopt, own and use.

Posted in Advent Software, Black Diamond Performance Reporting, Global, Risk

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