As UBS's Largest Shareholder, Singapore's GIC Voices Disapproval With Rogue Trading Loss

In a rare show of expression for the usually intensely private sovereign wealth fund, Singapore's Government Investment Corporation has voiced concern with UBS's trading loss.

(September 21, 2011) — Singapore’s Government Investment Corporation (GIC) has expressed disappointment with Swiss bank UBS’s trading errors, which caused $2.3 billion in losses.

In response to media queries on a meeting between GIC’s senior management and UBS’s CEO Oswald Gruebel at the sovereign wealth fund’s headquarters in Singapore, GIC issued the following:

“GIC and UBS management discussed the alleged fraudulent trading that led to the large financial loss for UBS. GIC expressed disappointment and concern at the lapses and urged UBS to take firm action to restore confidence in the bank. GIC sought details of how UBS is tightening the control environment and looks forward to the conclusions of on-going investigations.”

Despite the fund’s disappointment, it added: “GIC’s view of UBS’s fundamental strength as a well-capitalized bank with a strong private-wealth management franchise remains unchanged.”

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The Singapore state investment fund is the largest UBS shareholder, owning about 6.6% of the bank. The meeting between GIC and UBS’s Gruebel stemmed from unauthorized trades by Kweku Adoboli, who has been arrested following suspicion of fraud and abuse of his position. Currently, GIC is sitting on a loss of about $8.5 billion, excluding dividends, on the UBS stake it purchased in December 2007 for $11 billion.

The controversy over the London-based trader has added to already difficult times for the Swiss bank, as Europe’s sovereign debt crisis continues to pummel financial institutions across the continent. Meanwhile, as a result of the unauthorized trading loss, ratings agency Moody’s, Standard & Poor’s (S&P), and Fitch Ratings have placed UBS on review for downgrade.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

An investor survey by Carne Group has found that hedge fund governance is an issue that has increased in importance since 2008, with allocators now actively pressing for changes in the way that hedge fund boards are managed.

(September 21, 2011) — A new study by consultancy Carne Group aims to show how hedge funds can change the way they operate in order to stand a better chance of attracting and retaining institutional assets.

“The increased focus on the quality of governance on hedge fund boards comes as a direct result of higher levels of institutional investment in hedge funds coupled with the higher governance standards that they require post-2008. In addition, the pace of globalization is relentless, and as a consequence we are seeing investors asking for solid and consistent governance standards that can be replicated across the hedge funds industry, regardless of domicile,” John Donohoe, CEO of Carne Global Financial Services, stated in the study.

Some highlights of the report include:

1. A total of 91% of allocators agree that poor governance would cause them to avoid investing in a fund, even if it met other operational and performance criteria, while 76% of allocators have already decided against investing on at least one occasion due to governance concerns.

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2. Over 80% of investors rate fund governance as “extremely important.”

3. 58% of investors interviewed for the study said that an independent director should have no more than 20 to 30 manager relationships.

4. Allocators are more content with governance levels on fund boards promoted by European fund managers than North American or Asia Pacific managers.

The study also cited ratings agency Moody’s, which asserted in its recent note on fund governance: “Corporate governance practices for hedge fund firms are more closely examined today than at any other time in the history of the industry…hedge funds firms have experienced a shift in their investor composition from high net worth individual investors to institutional investors…Institutional investors have shown that they view the evaluation of governance and oversight as it relates to risk management, valuations, operational controls, transparency and the investment process as important as analyzing a hedge fund manager’s investment performance.”

The survey by Carne Group was conducted over the spring and summer of 2011 by surveying the largest allocators to hedge funds globally, receiving responses from allocators accounting for approximately 30% of all hedge fund assets under management.

Read the full study by Carne Group here.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742