Man Investments, the hedge fund subsidiary of Man Group, is the world’s leading alternative investments group, with $42bn (£22.25bn) in funds under management. Man Investments has been in operation for more than two decades and in the past calendar year launched more than 100 new hedge fund products.
Branded by some as the “cowboys” of the investment industry, hedge funds have taken considerable flak in recent years, largely from a sceptical media. But money just keeps flooding into the funds and the industry has grown exponentially in the past 10 years. In 1994, there were around 1,000 global hedge funds with assets of around $200bn (£105.94bn), while today there are almost 7,000 with assets of almost $900bn (£476.74bn). Indeed, Man Investments’ funds under management have risen to $42bn from $38.4bn (£20.34bn) only last September.
But if Man Investments has remained largely free of major controversy, it is in no small part thanks to its unique approach of embedding lawyers in every facet of its business.
In recent years, Man Group has embarked on a concerted effort to strengthen its senior management team and its corporate governance and compliance regime. To this end, Man Investments made a significant round of senior hires. Clifford Chance‘s co-head of private funds Stephen Ross was among the new recruits. Ross was appointed to the post of global head of product structuring, financing and management in January 2004, heading a unit of around 160 employees, of whom around 40 are lawyers advising on new product launches across jurisdictions including Europe, North America, the Middle East, Asia and Australasia.
The recruitment of a senior lawyer into a product structuring role is telling. Where asset management group Schroders famously united its legal team under a single group, Man Investments embeds lawyers in every part of the business to ensure that regulatory and compliance issues flavour each and every transaction. As Ross puts it: “Legal expertise in the design, manufacture, distribution and management of our products is an essential requirement of our job.”
Lawyers, notorious for being risk-averse and cautious, might seem the antithesis to the pioneering image of hedge funds, but the team insists that the lawyers at Man Group are product generators; and in an industry where brains are vital, the legal profession provides the group with fertile ground for recruitment. Last year, Man Investments engaged recruiters, hiring nine lawyers from firms including Ashurst, Clifford Chance, Linklaters and Simmons & Simmons.
The use of lawyers at the coalface of product development and management also has the advantage of keeping Man Investments abreast of the regulatory developments. The Securities and Exchange Commission (SEC), for example, is exploring amendments to the US Investment Advisers Act to give hedge fund investors the same protection as that accorded to investors in other asset classes. While EU reforms promise some harmonisation of legislation governing hedge funds – the pan-European legislation is currently under review – that prospect is a distant one. Hedge funds such as Man Investments, therefore, need an in-depth knowledge of all their markets, requiring significant global expertise and resources.
The regulatory proposals are indicative of the changing face of the hedge fund industry and the move towards hedge funds being marketed to private investors.
But while regulatory changes are among the biggest challenges facing the hedge fund industry, Ross insists that more stringent regulation could be to Man Investments’ competitive advantage, insofar as it might increase barriers to entry and ensure that all industry participants meet the highest standards of integrity.
In addition to embedding lawyers within its product groups, Man Investments runs a discreet legal and compliance function, which is responsible for day-to-day non-transactional work. The group, led by global head of legal and compliance Robert Aitken, has a team of seven lawyers and an annual legal spend of around $1.5m to complement the $10m Man Investments as a whole spends on its external lawyers.
The legal and compliance function works hand-in-hand with Man Investments’ product structuring lawyers in selecting external advisers.
Clifford Chance, the primary adviser to Man Group, has clinched the lion’s share of the organisation’s major M&A deals in recent years, including 2002’s $833m acquisition of RMF. But last year, following an internal review, Linklaters has acted as primary counsel to Man Investments, advising on the structuring and development of its new products. In addition, the alternative investment fund also instructs Ashurst, Conyers Dill & Pearman and Pinsent Masons on product development.
The highly complex, international and bespoke nature of Man Investments’ work makes it an attractive proposition for law firms. In the last calendar year, it has launched more than 100 new products, none of which was a copy and paste job. As Ross says: “There is a balance between repeat and bespoke transactions.” But the “bespokeness” of much of Man Investments’ work ensures there are few firms able to meet the challenge.
Hedge funds may have come a long way since their ‘pioneering’ days, but happily for legal advisers standardisation is a blissfully long way off.
Robert Aitken & Stephen Ross
Global head of legal and compliance and global head of product structuring, financing and management
|Funds under management||$42bn (£22.25bn)|
|Legal capability||Seven in legal and compliance and in excess of 40 across the company|
|Legal counsel||Global head of legal and compliance Robert Aitken and global head of product structuring, financing and management Stephen Ross|
|Main law firms||Ashurst, Conyers Dill & Pearman, Deacons, Linklaters, Maples and Calder, Pinsent Masons and Sidley Austin Brown & Wood|