Who’s Who Legal spoke to Alain Fernández, Chief Operating Officer at G2 Capital Partners LLP, a leading asset management company based in London, to find out more about the company’s recent activities and the economic developments in European funds markets.
Name: Alain Fernández
Position: Chief Operating Officer
Company: G2 Capital Partners LLP
Sector: Asset Management
In recent years, the quest for higher yields has turned its attention to emerging market debt and in particular local currency debt products. The economic turmoil in the developed markets has resulted in rising default risks in some countries and ultra-low yields in others, particularly in the US, Germany and the UK. In contrast, the emerging markets are an attractive proposition: offering investors higher returns with increased transparency and lower risk. Moreover, investing in local currency debt allows investors further diversification, increased potential returns from foreign currency appreciation and the opportunity to benefit from emerging markets’ growth and creditworthiness.
A relatively new entrant to this market, G2 Capital Partners LLP is a London-based investment management company, with a specialist focus on constructing and managing Russia and CIS portfolios. Founded in 2008, under the name Alcantara Asset Management LLP, the company currently has two funds under management: the G2 Emerging Markets Debt Fund, focused on Russia and CIS countries, and the G2 Equity Fund which is marketed to, and caters for, high-net-worth Russians.
Following the success of these two funds, they are about to launch a third – a rouble bond fund – to resonate with institutional investors looking to access the Russian market and higher returns.
Alain Fernández, G2 Capital Partner’s chief operating officer, spoke to April French of Who’s Who Legal about the qualities he looks for in external counsel, the increasing amount of regulation in the field and the opportunities for investors in the emerging markets.
Tell us about your role
As chief operating officer, my role focuses on ensuring the smooth running of the day-to-day business, whilst keeping an eye to the future. This includes HR, IT, operations, legal and regulatory issues, finance, budgeting and strategic planning.
Describe a typical day
Each day is truly different. In a small firm like ours it means that I might be dealing with trading and settlement issues, responding to regulators, dealing with corporate accountants on financial matters, invoicing clients or dealing with IT issues.
When do you enlist the advice of external counsel?
With no in-house lawyers on hand, this is always a challenging decision. For the big projects such as launching new funds or entering new agreements it is clear that we will require external advice. The challenging part is deciding when to bring in external lawyers on other matters; do we do this at the brainstorming stage when we are structuring and planning, or later when our ideas are more formalised? Costs are also a consideration in this decision. Aside from private funds legal advice we also require employment counsel for HR matters.
What skills and qualities do you require in external counsel?
First and foremost, we need someone who truly partners with the business. They must be keen to understand the business and learn not only what the firm is but what it wants to be in order to avoid inappropriate advice. This tends to be someone with strong listening skills.
As a non-lawyer, I do not like strong egos or counsel who show off what they know. It’s about getting down to business and proving their worth through their actions.
It is also important for a lawyer to tell us how it is. If an idea is not feasible or even possible, we need to know quickly and often we will need to be presented with an alternative solution. It’s about trust and having an open dialogue.
Do you tend to work with the same firms?
Yes. When I started at this company there were already some existing relationships with law firms – some of these I kept and others I changed. I drew on my experience from the past and my own existing relationships with lawyers to fill the spaces. In Ireland we work with Walkers and in the UK we utilise Cummings Solicitors, a boutique specialising in funds and fund management, and Laytons for non-fund management issues. Due to our relatively small size, we do not have the legal budget for some of the larger firms, therefore we turn to more niche firms in the field.
When working outside of your own jurisdiction, how do you find external counsel?
Through referrals from lawyers and from our personal networks. Reputation is critical.
Tell us about any recent projects you have been working on.
When I joined, the company had already decided to redomicile funds from the Cayman Islands to Dublin and had selected Walkers in Ireland to assist. During this project there were many twists and turns and the flexibility that our counsel showed was tremendous. The objectives changed a couple of times, as did the timing but our lawyers kept us on course and helped us to achieve the ultimate result. Furthermore, they were forward-thinking: asking probing questions about what we wanted to achieve and helping us to implement the appropriate structure accordingly. Working with commercially minded counsel is definitely enjoyable and helps you sleep better at night!
What makes Russia and the CIS attractive to investors?
Across the board, local currency debt products in emerging markets are increasingly attractive, particularly to institutional investors such as pension funds looking to solve their yield problems. The recession has created large deficits and created turmoil in markets once considered safe.
The BRIC countries have risen in profile against this background due to their growing economies and the improvements in transparency. Their growth versus developed markets is allowing for higher returns. As a result, there has been a considerable increase in the allocation of assets to emerging markets.
Our company is focused on the “R” in BRIC – Russia. Russia’s fixed-income market was developed in the mid-1990s and in many ways is more efficient than bond markets in the West. For example, bonds are exchange traded resulting in increased price transparency and decreased counter party risk.This provides some comfort to investors looking for a place to allocate some of their risk budget to achieve higher yields.
Have you noticed any increase in interest from investors as a result of the financial difficulties in more developed economies?
Yes, definitely. Whether the investments directly replace those previously going to Spain or Italy it is hard to say, but the emerging markets and specifically local currency funds have definitely increased in favour among investors, particularly institutional investors.
How has G2 Capital Partners responded to the increasing amount of regulation in the area?
It’s tough. Although the final text of the AIFM Directive has been published, we are still waiting to see the full effect of some of the elements which will only become clearer as the European Commission provides implementing measures and member states transpose the directive into national law which will happen in 2013.
It appears that some of the original protocol behind the directive has ceased and so we are curious to see the final result. As a small company, we cannot devote too much time or resources without knowing the final impact of the directive. Beyond taking some initial steps, we are waiting further instructions.
Increased regulation has a lot of cost associated to it. We need to keep ahead of all the twists and turns and ensure full compliance without having teams of people dedicated to the job.
What is the greatest challenge for the private funds sector?
The two biggest challenges are distribution of our products and changes in regulation. Generally, distribution or asset raising is a primary challenge for most new hedge fund managers. Getting your message out to potential investors and consultants takes a lot of time and effort. So whilst we do look to communicate more broadly with the marketplace we ultimately believe that focusing on delivering consistent returns will increase our profile in the long term. As for the regulatory challenge, it is not an issue of having the desire to stay compliant but more about having the means and the time to keep abreast of the changes in regulation. Additionally, the changes in regulatory requirements result in an increase in real costs and/or opportunity costs. Unfortunately, when you are running a small firm this means everyone ends up performing more non-investment and internally focused tasks.