INDOS Financial x AFI Roundtable 2025: Hedge Fund Governance in a Time of Upheaval

Senior hedge fund industry professionals gathered in Mayfair in May for the third annual roundtable discussion and dinner organised by Indos Financial, a JTC Group company.

Attendees:

• Malcolm Butler, Selwood Asset Management
• Phillip Chapple – Chief Operating Officer, Monterone Partners
• Sarah Crabb – Partner, Simmons & Simmons
• Jonty Field – Co-Head & COO, GreshamQuant
• Neil Hamilton – Chief Operating Officer, PVTL Point
• Neil Hobson – Chief Operating Officer, Gladstone Management
• Abi Holland – CEO, INDOS Financial
• James Hopegood – Director, Asset Management Regulation, AIMA
• Gemma Magee – Founder, Comsura
• Jon Masters – Head of Business Development, INDOS Financial
• Mark Painting – Founder, Salt Rock (speaker)
• Donald Pepper – Co-CEO & Head of Multi-Strategy, Trium Capital
• Will Wainewright – Founder, Alternative Fund Insight

The group engaged in a wide-ranging 90-minute discussion focused on themes in fund governance, regulatory changes and macroeconomic volatility sparked by the second Trump presidency.

Following a 15-minute introduction on the macro-economics and geopolitical backdrop by macro hedge fund manager Mark Painting, the roundtable discussed:

• The impact of the US deregulation agenda on global fund hubs. Regional shifts (Luxembourg and Ireland) and the regulated versus unregulated debate.
• Whether investors changing their attitude to due diligence on asset managers
• Thoughts on the HMT/ FCA AIFMD review (proportionality, new bands)
• Industry trends, from AI to the pros and cons of the SMA.

Here follows a condensed version of the conversation, edited for clarity and brevity:

Macro upheaval

Mark Painting started the conversation with an overview of the geopolitical situation and its impact on the macroeconomic trading environment.

“This year has been totally dominated by President Trump and his tariff agenda. The situation has been very fluid and I think that’s probably an understatement. All economic forecasts, from Wall Street banks, the IMF and World Bank, you name it, require a macroeconomic framework that is broadly stable. Everything has been turned on its head, with recession expectations shooting up and CEOs finding it hard to give forward guidance on anything.

“I think the hedge fund space will do quite well in the next year or two, whereas the outlook has got materially harder for private equity since the pandemic. IPO markets have been theoretically shut for too long and whenever they just briefly open, something bad happens. So they found it very, very difficult to get rid of their investments at their current marks. Allocators favour more liquid strategies but are unable to switch.”

Impact of the uncertainty

Phillip Chapple of Monterone Partners, a European equity manager, said it had been important to remain calm from a risk management perspective. “We’ve focused on keeping calm and looking through some of the turbulence, rather than just get caught up on short term effects.”

Another participant noted that their general rule was to wait three days before making a firm decision on the basis of something President Trump had said, given that he changed course so frequently.

James Hopegood, Director of Asset Management Regulation with AIMA, an expert in regulatory funds policy, noted a slowdown in the amount of new regulations coming out of the US since the change of administration.

“We’re also seeing that the sometimes confrontational position the industry had with the SEC has now gone.

But we also have high uncertainty and things change quickly.” He noted the quick change to beneficial ownership register reporting rules.

The new strength of Europe’s banking industry had been high up the agenda for one participant. “Excess capital, profitability, new management teams, clean balance sheet. So we think that’s very important for Europe.”

Neil Hamilton, COO of start-up credit firm PVTL Point, described the experience of bringing a new firm to the market during such a turbulent environment. The group agreed there had been a slowdown in activity in recent weeks, with some firms choosing to wait for a calmer environment before starting to trade formally.

“On the hedge fund side, we have always seen quite a range of business each year,” said Jon Masters. “We’ve seen quite a lot of US interest looking to broaden their portfolio of investors looking towards Europe, which always impacts depositary. Germany and Denmark require a depositary to do that.”

Malcolm Butler, managing partner at Selwood Asset Management, discussed the focus areas for his firm, one of the biggest credit managers in Europe.  Credit generally has been benefiting from the turmoil.

Sarah Crabb, hedge funds partner at Simmons & Simmons, an international law firm. “When the tariffs were announced, there was some initial scrambling amongst clients. There was lots of interest in speaking to us about the liquidity mechanics, or triggers, in the fund documents and counterparty documentation that might become relevant depending on resulting market disruption and impact on fund performance.”

Phill Chapple on impact on fundraising of geographic shift: “We’re getting enquiries and from investors basically saying they’ve been using the US as kind of a global proxy for so long, especially with the Magnificent Seven, and now want to diversify.”

The group discussed the question of when long-awaited distributions from private equity will actually start emerging. The diversification in a liquid format offered by most hedge funds does make them more attractive now compared to the post-2008 period when 60/40 and private equity were in the ascendant.

Regulatory issues

The group also discussed changes to ESG rules in the new geopolitical environment, for instance European investors opening up to defence stocks having previously been stopped. Defence sector investments are now a hot topic.

James Hopegood noted that AIMA had recently published a short piece for managers on the issue. “There are a lot of competing issues. These holdings are no longer toxic in the ESG sense for some investors, but there remain fund rules telling you what you can and can’t invest in.”

He provided an update on recent regulatory initiatives. “We’ve got the UK Asset Management region reforms going on now, a consultation paper from the Treasury and a call for input from the FCA. The Treasury paper is basically saying this is what we’re minded to do, and it contains detail that would change primary legislation in order to facilitate those changes, which effectively is to say there’s going to be a single AIFMD regime.”

A possible move to proportionate regulation is based on three tiers. Guidance is required on what is considered proportionate.  There is a danger that small managers will look to comply with most of the regulation from the get-go to ensure they are covered, which would be quite a burden — it is not clear how a notification only process will work.

Changes affecting emerging managers, and the UK looking to improve ease of access to the market for funds starting to launch, were also discussed, as were the growing central bank and regulatory focus on hedge fund leverage and its possible implications.

The room noted that compliance has become overly complicated. Does the compliance industry have enough resource/expertise to implement a principles-based approach?

It was noted that for a lot of the new managers launching over the last decade it’s more usual now to go with a regulatory host than to go for your own FCA licence at the beginning.

Artifical Intelligence

Attendees were being impacted more in their day-to-day work by AI technology.

One attendee was using AI on the portfolio manager research side to explore how their holding companies were using AI. “We have built our own kind of tools to interrogate our transcripts and things like that, which works well. But even then, you kind of have to look at the hallucinations, validate it and audit it, and it brings issues regarding storage.”

It was also being used by attendees to improve processes on the middle and back office side, but there were issues over security voiced by the room. “What happens to the data we are putting out there?”

Also originality — although it helped hugely with timesaving of some processes, human involvement remained critical.

It is important to fully understand the material produced using AI so you can audit the output. It’s very useful for putting the initial framework in place.

Segregated Managed Accounts

There was discussion over their increasing use by the industry. Advantages of security, control and transparency have been complemented in recent years by capital efficiency advantages — effectively optimising the Treasury — brought by higher interest rates.

It has become increasingly common for hedge funds to start trading with managed accounts and then start a commingled product, though commingled first remains the typical route to market.

All agreed good compliance is crucial with the managed account structure. One attendee noted an issue of how much independence former pod-shop traders spinning out their own firm backed with an SMA actually had. The allocator could still remove it quickly, if they would like to.

The room also noted a hardening of regulatory approach from the CBI and CSSF particularly with respect to AML.

About INDOS

INDOS Financial has grown organically, developing solutions recognised as industry-leading. As of April 2024, client assets under oversight have grown past $45 billion. In 2021 JTC completed the acquisition of INDOS, enhancing JTC’s well-established fund services capabilities.

About JTC Group

JTC is a publicly listed, global professional services business with deep expertise in fund, corporate and private client services. Every JTC person is an owner of the business and this fundamental part of our culture aligns us with the best interests of all of our stakeholders.

About AFI

Alternative Fund Insight provides professionals working in hedge funds and multi-strategy investing with regular bulletins, essential analysis, interviews, data trackers and research they won’t find anywhere else.

Founder and editor Will Wainewright has reported on the sector for almost 15 years in London and New York, working for Bloomberg News and editing EuroHedge magazine.