How Madoff 'helped' this hedge-fund policeman
Published 10/01/2013 | 05:00
Stringent regulation and restrictions have led to Apex Fund Services' reputation as the fastest expanding administration outfit in a post-Madoff financial world, writes Mark Keenan
WHO'S afraid of the big bad wolf? In the post-crash world of global hedge funds – that most cagey, murky, secretive (and dare we say, paranoid?) realm in which so many sheep have been shorn in recent memory – the answer these days is: "Everybody. "
Most especially since 2008 when arch predator Bernie Madoff (Mr Nasdaq) was caged for 150 years for so spectacularly fleecing thousands of US investors in the mother of all Ponzi schemes – all dressed up as a "respectable" investment fund.
It's why 41-year-old Dubliner John Bohan, co-owner of Apex Fund Services – now deemed to be the fastest expanding independent hedge administration outfit in the world – can't help but crack a smile when he hears the "M" word.
Because when it comes to generating business, Bernie M has been the hedge adminstrator's very best friend. His flushing of $18bn of investor's cash caused it to rain manna in Bohan's sector by driving predator fearing investors into the arms of independent hedge administration companies like Apex who offer watchdog and ongoing auditing services.
"Pre-Madoff I'd say around 50pc of hedge funds had an independent administrator. Post Madoff that very quickly moved up to more than 80pc," says Mr Bohan.
Apex reassures its clients (more than 95pc of whom are non-Irish based) by keeping a beady private eye on those pesky hedge fund managers – just so they're not tempted to turn Ponzi or drop any big cheques off in the wrong place.
Ten months ago Apex had 280 employees, now the company has expanded to 350. On average since its foundation a decade ago Apex has grown by between 30pc and 60pc per annum and now operates 28 offices around the world while administrating funds worth €23bn. Most recently it opened a second office in Miami, a second in Guernsey and its first in Montevideo and Tokyo and now has plans to open in Jersey.
Founded here in Cork from Bermuda, it opened a Dublin office last year pledging 50 new jobs. It's expansion has not gone unnoticed globally and early last year it took the award for the world's most innovative fund manager in the "under $30bn" category. The steady pace of expansion also saw Mr Bohan shortlisted for the 2012 Ernst and Young entrepreneur of the year award, thus bringing Bohan and Apex into the Irish spotlight for the first time.
The company was founded by UK born financial services guru Peter Hughes in Bermuda in 2003. He asked Bohan, a chartered accountant, then also based in Bermuda, to join him in building an independent fund administration outfit. Since 2008 there's been a perfect storm of opportunity in the sector.
Interest in hedge funds has continued to grow globally. The promise of higher returns and greater diversity compared with more traditional investment opportunities means that despite their Madoff jitters, investors keep coming back to the well. The sector has grown in value from $625bn in 2002 to €2.8 trillion last year.
"Hedge funds are fast moving into portfolio mainstream," says Bohan. "Much of the new growth is now being driven by pension funds and large institutional investors."
Despite the slew of regulations and restrictions brought down on hedge funds since the Madoff bombshell, the nature of hedging means that it must always maintain a secretive aspect that can never be completely eliminated. That means there will always be scope for a renegade and in turn, the need for an independent policeman like Mr Bohan. "In 2008 Europe and the USA's largest multi billion dollar hedge funds imploded. The result was lots of newly unemployed professionals who inevitably started getting together to make up hundreds of very small hedge funds of their own. The effect in turn was to greatly increase the numbers of firms who would be in the market for our services."
And it got even better for Mssrs Bohan and Hughes. As part of the Madoff fallout, world financial authorities began to heavily regulate the hedge sector. "More regs meant a still greater need for administration services to help investors to cut through the steadily more complicated trading environment."
Bohan is keen to stress the global leadership role Ireland plays in hedge fund administration – we are currently cornering 43pc of the global market making us the single largest player. "The development of the IFSC coincided with the growth of the sector which took hold on the back of Dublin based mutual fund based enterprises."
"In fund administration Ireland is now the gateway for Europe, the bridge between the USA and the continent and also the onshore link for offshore, namely Bermuda and Cayman. It also compliments London perfectly by proximity. We are well educated, English speaking and have a well of skilled financial services professionals."
In a business which has been dominated by the big banks and their large scale corporate approach, Mr Bohan and his partner Peter Hughes claim to have achieved their success by punting a more intimate "Irish style" service which has proven popular with hedge clients who prefer closer contact.
"Unlike so many of our competitors who like to radiate out from a central global hub, we have chosen to operate a completely different model whereby we send our personnel to where the business and the customer is at – to each of our locations around the world so that they make themselves directly accessible to clients on the ground. In growing markets like Asia and the Middle East in particular, people expect real contact and virtual just won't do it for them. Unless you're there on their doorstep they don't want to know you."
They take this "code of accessibility" bit very seriously indeed – even to the extent of banning voicemail. "It means that when a client phones us they will always end up talking to a member of staff no matter what. We also have strict time response limits for emails to ensure that no one is kept waiting."
The "local" approach enabled Apex to become the first independent hedge administrator to open in China, a notoriously face to face reliant market. On top of this Apex has also recently joined up with a leading software company to provide hedge admin software solutions, exclusively to its own clients – another big draw which has made life much easier for its customers.
And if you don't understand the notoriously impenetrable concept of hedge funds, don't fret, because neither do most of us. The hedge fund policeman estimates that even the financial sector professionals don't comprehend them much as they'd try to let on: "From experience I'd say just 25pc of those employed in the Irish financial services sector today actually truly understand how hedge funds work."
Bohan says the propensity of Irish financial professionals like himself to travel for a few years means that there are at least 3,000 Irish working in financial services in Bermuda at any one time (the tiny island has four GAA teams). Caymen and Bermuda are the planet's hedge fund Harvards and home to 90pc of the worlds most important fund administrators today. "If you base yourself in Bermuda or Cayman, you not only get to know the system intimately but you get to make the very best global contacts in the field." This is why a third of Apex's senior management are Irish.
He's 100pc behind the record of Enda Kenny's coalition and the regulatory splurge of Mathew Elderfield. "The financial world is now looking at Ireland and saying "they've done the right thing, they've taken their medicine.
"And I believe that contrary to some claims, the tighter regime introduced by Mr Elderfield has begun to help Ireland gain business in the sector simply because some investors are now starting to run scared of less regulated regimes.
"What we would be concerned about is any move to increase the cost of doing business here."
While he believes that the Corporate Tax rate is important to the financial sector generally, he says it's not the single most important factor. He even estimates the critical ceiling for corporate tax a little higher. "I'd say 14.5pc is about as high as you could go without doing serious damage."
Not surprisingly Mr Bohan is staunchly in defence of hedge funds, which are still regarded rather suspiciously thanks to their more secretive aspects and "lock in" periods for investors. But unlike banks, no hedge fund has had to be bailed out by any nation's tax payer. "When bank finance had completely dried up the hedge funds continued to provide a source of seed capital for start ups".
While the two partners remain tight lipped about the current value of their company, the sale last year of the fund administration giant GLOBEOP for US$880m, a competitor estimated at five to eight times the size of Apex (which ranks 24th in the world), would indicate the value of the latter at somewhere between $80m and $200m. "No comment!" says Mr Bohan who stresses that no one is selling anytime soon.
"Our main goal this year is to break into the top 20 hedge administration companies globally."
Given the explosive expansion of Apex thus far, we probably won't have to hedge our bets on this outcome.