The £500bn hedge fund industry could be facing a raft of scandals similar to
the one currently embroiling futures broker Refco, due to a severe skills
shortage at accounting firms working with the funds.
Experts have warned that firms are finding it difficult to recruit staff
capable of coping with the demands of assurance and advisory work around the
funds, posing a substantial risk to investors and hedge fund managers.
The crisis over the lack of skills comes as market watchers grow increasingly
concerned that hedge funds do not have the systems in place to keep track of
activities and monitor risk and potential fraud.
The funds use increasingly exotic instruments and move rapidly. Without the
appropriate back-office capacity in place to monitor such transactions, funds
are left vulnerable to exploitation by unscrupulous individuals.
Last week, brokerage Refco went bankrupt after it emerged that the group’s
chief executive Phillip Bennett had allegedly used a hedge fund to conceal an
irregular $430m (£243m) debt from investors and regulators.
Amin Rajan, CEO of research firm Create, which has worked extensively with
KPMG on hedge fund research, said that, because the funds used such intricate
techniques, it was difficult to recruit individuals with the required ability.
‘There is a huge shortage of skills. There are not enough people out there
who understand how the investment vehicles are used,’ Rajan said. ‘Skills will
only develop as demand grows.’
Stuart McClaren, director of hedge fund services at Deloitte, said hedge
funds typically had very small staff quotas and relied on accounting firms to
provide risk management and financial systems expertise.
‘The industry is a difficult one and it is a concern,’ McLaren said. ‘Staff
numbers are small and it is hard to get up to speed as funds grow so rapidly and
major parties such as banks, brokers and institutions become involved. The
industry is not as controlled as it would like to be.’
Welcome to our live blog for Spring Budget 2017. Follow our Budget coverage throughout the day, including expert analysis and opinion on the key issues
Vernon Dennis of Howard Kennedy LLP explores recent and future challenges faced by the insolvency sector
The established building and heritage restoration company has ceased trading following the loss of major tenders
Many working in professional services have received honours this new year from the Queen