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Alternative Investment - March 23, 2010

Dice are still rolling - an interview with Philippe Teilhard de Chardin

In this month's interview, Philippe Teilhard de Chardin, Global Head of Prime Brokerage at Newedge and member of EDHEC Risk Institute's International Advisory Board, discusses the consequences of the financial crisis for risk management, Newedge's activities with the alternative investment industry and Newedge's support for EDHEC Risk Institute's research.

Philippe Teilhard de Chardin

The first year of the "Advanced Modelling for Alternative Investments" research chair, which is sponsored by Newedge Prime Brokerage has given rise to an academic working paper on hedge fund replication and an industry survey on hedge fund reporting. Could you tell us a bit about Newedge's interaction with the alternative investment industry, notably in the UK?

Philippe Teilhard de Chardin: In the UK we are a favoured partner for hedge funds with our global prime brokerage services. London is of course the leading onshore financial centre in Europe for hedge funds so it makes sense for us to be based there.

We offer multi-asset class, multi-instrument prime brokerage with global coverage and a “follow-the-sun” servicing platform. We structure prime brokerage mandates with hedge funds and investors, taking into consideration trading strategy, instrument coverage, the portfolio risk profile, leverage requirements, the legal domicile and fund structure, regulatory constraints, counterparties and capital objectives.

The past two years have been turbulent ones for both the alternative investment space and the financial industry as a whole. After the crisis, how do you see Newedge's role evolving in this industry in the future?

Philippe Teilhard de Chardin: Well, after the financial crisis Newedge came out of the prime brokerage shake-up quite well. We actually saw a 50% increase in our number of clients between 2008 and 2009.

In terms of how the industry will evolve, the new Obama measures in the US will profoundly restructure the industry notably in terms of seed capital and financing of hedge funds. Obviously, Newedge like all other brokers is watching these developments attentively because they could provide opportunities in terms of prime brokerage but also raise questions when the prime brokers are owned by banks. Dices are still rolling though.

Securities borrowing and short selling is another important issue. This poses a problem not only for the investment industry but also for the service providers. A case in point is the recent SEC decision to introduce a circuit breaker mechanism that will ban short selling on a stock whose price has declined by more than 10% relative to the previous day’s closing price. The full consequences of these recent decisions have yet to be gauged but there is certainly a risk that it will make our business more complicated.

We naturally support increased transparency as well because this is important for both funds and investors. The Hedge Fund Reporting Survey supported by Newedge which was released early last year by EDHEC Risk Institute notably assessed the current practices of hedge funds and funds of hedge funds and made propositions to improve reporting. These proposals correspond to Newedge’s vision because transparency is one of our key areas of focus.

The downturn will lead to increasing focus on risk management and operational infrastructure. How do you expect this particular development to affect Newedge's business?

Philippe Teilhard de Chardin: We have a strong culture of risk management and compliance within Newedge. Risk management is a fully separate function within the corporate structure and our risk management team includes over 160 professionals over all regions. It also has its own board risk committee. Newedge is regulated by the French banking commission and naturally adheres to the strict Basel II risk and capital management requirements.

Finally, we operate based on 10 key principles of conduct and have worked to develop a strong compliance culture around those principles. All of these points contribute to Newedge being particularly well prepared in my view for the future.

Newedge has supported EDHEC-Risk's research for several years now, going back to the EDHEC European Alternative Multimanagement Practices Survey in 2003. What are the reasons behind this long partnership with EDHEC-Risk and how do you think academic research adds value to the industry?

Philippe Teilhard de Chardin: It is simple: academic research adds value to the industry by improving industry practices. EDHEC Risk Institute is particularly good at pinpointing the areas that require improvement and making constructive recommendations to help professionals to progress. I genuinely believe for example that it would benefit the whole hedge fund industry and all investors in alternative investments if the recommendations included in the Hedge Fund Reporting Survey were fully adopted.

EDHEC Risk Institute also does a splendid job in communicating the results of its research to investment professionals, asset owners and regulators. All of these reasons have contributed to our longstanding support for EDHEC Risk Institute and we are particularly pleased to continue our partnership on the “Advanced Modelling for Alternative Investments” research chair.

About Philippe Teilhard de Chardin

As Global Head of the Prime Brokerage Group with Newedge, Philippe is in charge of a team of professionals based in Hong Kong, Singapore, Paris, London and New York who provide a range of services based on a portfolio approach across asset classes and instruments underpinned by an advanced cross-margining methodology.

Philippe’s first professional role was with CIIB in Paris, a financial engineering firm that specialised in small and mid-cap IPOs on the French market. He then went on to work for Bosher SA, a leading stockbroker in Paris, as a sales-trader in their listed stock option department, as a listed derivative trader on the MATIF and then as head of the stock indices derivative team. Philippe was hired in 1989 by Societe Generale to help set up the London office of Fimat International Banque as part of their international expansion. He was responsible for creating and developing the Fimat listed options business and subsequently ran the various front office activities in London.

Philippe then established the Alternative Investment Solutions division within Fimat in 1999, which specialised in providing dedicated prime brokerage services to alternative investment participants. Philippe took on his current role as Global Head of the Prime Brokerage Group for Newedge following the merger between Fimat and Calyon Financial in January 2008.