Michael Mainelli, “Standard Differences: Differentiation Through Standardisation?” (ISO9001, SAS70 and management systems), Journal of Risk Finance, The Michael Mainelli Column, Volume 6, Number 1, pages 71-78, Emerald Group Publishing Limited (January 2005).
As hedge funds and asset managers increasingly compete for mandates, the standard sales process is starting to buckle. Take a typical sales visit by an institutional investor:
60 minute presentation – we are the best because this is our theory, which is ours, and it is the best and we backtested it and it was great - or we don’t need to backtest it because we are great;
60 minute interview with principal trader/strategist – I am the best, because I am and I always have been - except when I was with a house whose pockets weren’t deep enough to see me through;
15 minute preliminary due diligence chat – we are the greatest, so we run the greatest shop and we never make mistakes.
You don’t really learn a lot from this process, do you? They told you they were the best before you visited (and that you should give them pots of money). When institutional investors were keen to diversify, fielding a credible trader or strategist gained a lot of funds to manage. However, markets are tightening and hedge funds and asset managers are keen to differentiate. Increasingly, but not universally, hedge funds and asset managers are being asked to prove that they are well-run; that operational risk is low. One axis of competition is compliance with standards such as ISO 9001 or SAS 70.