Reputations made, and lost

December 09, 2010   Michelle Celarier

By Michelle Celarier

Insider trading scandals have resurfaced at hedge funds, reminding us once again that reputations are hard to build-and easy to lose. One errant trader or portfolio manager at a fund can cause investors to flee, as has already been the case at FrontPoint Partners, which is facing billions of dollars in redemptions following allegations that its health care fund portfolio manager, Chip Skowron, traded on insider information.

More recently, Diamondback Capital tried to reassure investors it wasn't the target of the FBI investigation that had agents raiding its offices. Only one unnamed manager, whom Diamondback has since put on leave, is apparently in the FBI's crosshairs.

It should come as no surprise that investors might be wondering what type of risk management these funds employed that allowed them to be dragged into this mess. The more institutional the investor base becomes, the less tolerance there will be for such behavior.

For their part, hedge funds are bemoaning that the Securities and Exchange Commission is redefining the definition of insider trading as it goes after expert networks and the type of information they trade in. But anything that's nonpublic information and can move a stock-whether it's a new drug being approved by the Food and Drug Administration or legislation that will affect an entire industry-seems fair game. Hedge funds-or anyone else, for that matter-shouldn't be able to buy information that will give them unfair advantage over the rest of the investing public.

Some managers may think such an edge is their raison d'être, and no doubt detailed legal arguments will be made. But the crackdown ultimately depends upon the political will in Washington. Under former president George W. Bush, the SEC pulled back on its scrutiny of hedge funds and Wall Street in general. (You may recall that the agency's personnel had little to do but surf porn sites during that era.) It's unclear how much the Obama administration will be able to accomplish once Republicans start starving the federal agencies of funding next year.

Speaking of reputations, AR's continues to grow. The AR Weekly News, under the direction of online editor Josh Friedlander, won a 2010 Digital Azbee gold award for e-newsletters focused on current events. Selected by a panel of business press judges, the annual Digital Azbees honor "the best business-to-business editorial and design for digital content," according to a press release announcing the 2010 winners.

And our artwork, under the direction of art director Nathan Sinclair, continues to win accolades. Our "Rich List" cover illustration, designed by Tom Brown and appearing in April, has been chosen to be included in the 2010 Communication Arts Typography annual. The illustration of George Soros by Jack Unruh that accompanied that cover story has been selected for the New York Society of Illustrators annual exhibit early next year.

Our illustrations may be making some managers look good on the outside. But it's up to them to make sure they're just as pretty on the inside.



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