The Canadian National Post newspaper has just run an article on high frequency trading, which has made its way north of the border in spectacular style. According to the Post, the Toronto Stock Exchange (the TSX) was the venue for some 99.5% of trades in the largest 60 Canadian quoted companies one year ago: in a mere twelve months, this percentage has fallen to just 69%. The winners are new, so called "alternative exchanges", which appear to be favoured by high frequency traders.
Such a shift in trading patterns is pretty dramatic by any measure. When thinking about this, we certainly agree that any trading strategy which increases exchange volumes can be good - more volume can increase price transparency, make it easier to fill orders (especially smaller orders from retail investors), and reduce bid ask spreads.
On the other hand, you have to take a step back and ask how high frequency traders make their money. Exactly why is it that these traders need a computer data centre of the size usually reserved for manned space missions? Exactly what informational, mathematical or regulatory advantage are these traders exploiting to make money as they place orders for millions of shares a day, in and out of names many times during each trading session?
The SEC has already focused on the practice of "flash orders" whereby certain investors could access information about order flow a half second ahead of other market participants. At first glance, you have to ask what possible difference a half second could make - until you realize that a half second is a very long time when you have Google levels of computing power. Dark liquidity pools and other off exchange trading also seems to be an area of current regulatory focus (see a recent Bloomberg article for a summary of these developments.)
The National Post quotes Joe Saluzzi of Themis Trading, who comments: "What these guys are about is speed, and they are getting access to quotations before the general public…so, in essence, they are re-engineering the quotes by jumping between you and the seller". He continues: "most investors don't even realize they are losing money, because their pockets are getting picked without them even knowing it. The price you paid may have been inflated during the day, because they are taking advantage of the order flow and you don't even know it."
To be clear, our comments are as an interested observer rather than an informed opponent (or proponent) of high frequency trading. As above, volume and liquidity have many powerful advantages, and perhaps high frequency orders are the "wave of the future".
On the other hand, we do hold our hand up as professional skeptics. The fact that a small group of trading entities with Fortune 500 style IT budgets can make a very profitable business out of high frequency trading raises our common sense antennae. The reason, of course, is that there is no retail investor who could deploy the same trading technique - a Dell desktop simply won't cut it. High frequency traders therefore have an advantage which is unavailable to the "average" investor.
It's always good to bear in mind that much of investing is a zero sum game - someone makes money, with the unavoidable implication that someone else has lost it. The skeptic in us, therefore, is reminded that it isn't always a great idea to bet too heavily on strategies which allow a small group of investment insiders to make money at the expense of the little guy.
That, of course, was the lesson of mutual fund timing.
A number of our recent posts have focused on the challenges of the hedge fund administrator's role in relation to security valuation. We will, of course, return to this topic - but, in the meantime, wanted to focus on some of the alternatives to administrator pricing.
One of the more common comments from today's administrators is that, while an admin may be able to price Level I and Level II securities, they do not necessarily have information to price Level III instruments. (To recap, the US accounting standard FAS 157 divides portfolios into three levels, being Level I, liquid instruments readily priced from a pricing feed (typically exchange traded); Level II, instruments priced using inputs from "comparable" securities (essentially mark to model, albeit with mainstream models); and Level III, everything else).
This leaves investors with a challenge - if administrators cannot price Level III instruments, who can? Moreover, to repeat one of our frequent comments, it is self evident that if a hedge fund manager wishes to deliberately mismark securities, they would most likely misprice a Level III instrument. It is, of course, very hard to fake the price of IBM common stock, but much easier to mismark emerging market private loans.
Two of the most common tools available to hedge fund managers looking for third party oversight over pricing for Level III instruments - assuming the administrator has washed their hands of the problem - are third party pricing agents and auditor agreed upon procedures, or "AUP". We will return to the strengths and weaknesses of third party pricing agents in a subsequent post, but wanted to focus this discussion on AUP.
In an Agreed Upon Procedures engagement, the auditor completes specific procedures which have been dictated by the client. The procedures are specified and the auditor then prepares a report outlining the findings of that specific work.
We have two comments here: the first is to take a high level view as to the adequacy of these procedures, and the second is to dig a little more deeply into the actual audit guidance that covers this type of work.
Our first comment is, unfortunately, an Emporer Has No Clothes observation. The significant majority of hedge fund AUP engagements we have seen require the auditor to test a fund's pricing on a quarterly basis. This usually involves (i) obtaining a portfolio list from the investment manager and (ii) testing the pricing support for those positions.
There are, however, generally two snags. Firstly, many AUP only test a sample of prices, not the whole portfolio. Sample testing clearly provides much less assurance than a price review of all positions: the administrator, for example, is usually expected to price the entire book (would any investor accept a NAV which has been priced on a "sample" basis???)
The bigger problem, however, is the type of testing completed by the auditor. In way, way too many cases, the auditor tests security prices back to the manager's own pricing support and makes no attempt to obtain independent pricing information.
This type of work is, clearly, somewhere between minimal and absolutely no value for investors. If the auditor receives a spreadsheet from the manager showing the matrix of broker quotes received, how does the auditor know that the manager has not adjusted that spreadsheet to exclude quotes which were uncomfortably low? Even more importantly, if all the auditor does is to check prices back to pieces of paper in the manager's own pricing file, how does the auditor know that those pieces of paper are genuine? As we have said before, and will keep on saying, it only costs $500 to buy a copy of Adobe Photoshop if you are of a mind to alter documentation.
When discussing this type of work, the manager typically notes that, if the auditor was to complete a full, independent pricing review, it would be too costly and too time consuming to be practical on a quarterly basis. A full, GAAP audit review is, of course, performed at year end - this does include independent pricing (although - investor fyi - auditors will still only sample test many portfolios.)
While these are fair points, it remains the case that this type of AUP provides minimal protection against pricing fraud. In the meantime, the manager gets the marketing benefit of being able to claim enhanced scrutiny and oversight from a Big 4 firm each quarter.
Which leads to our second point. Why would an auditor accept to complete agreed upon procedures when any reasonable accountant would rapidly conclude that the typical scope of these AUP provide pretty much nil controls assurance? Why does the auditor not insist that, if their name is to be associated to this work, then the procedures must be meaningful and sufficient to meet an actual control standard?
To this point, the actual audit standard applicable to AUP is available here. The standard states:
An agreed-upon procedures engagement is one in which a practitioner is engaged by a client to issue a report of findings based on specific procedures performed on subject matter. The client engages the practitioner to assist specified parties in evaluating subject matter or an assertion as a result of a need or needs of the specified parties. Because the specified parties require that findings be independently derived, the services of a practitioner are obtained to perform procedures and report his or her findings. The specified parties and the practitioner agree upon the procedures to be performed by the practitioner that the specified parties believe are appropriate. Because the needs of the specified parties may vary widely, the nature, timing, and extent of the agreed upon procedures may vary as well; consequently, the specified parties assume responsibility for the sufficiency of the procedures since they best understand their own needs. In an engagement performed under this section, the practitioner does not perform an examination or a review, as discussed in section 101, and does not provide an opinion or negative assurance. Instead, the practitioner's report on agreed-upon procedures should be in the form of procedures and findings.
In practice, this all gets horribly circular. Per the standard, a client requests an auditor to complete AUP to assist "specified parties" to "evaluate subject matter or an assertion". In our case, the assertion would be "are hard to value securities valued correctly at quarter end."
However, the specified party is usually the manager itself, making the client and specified party the same person. The particular trick applied, in many cases, is for the auditor to seek to prevent the investor from actually seeing the AUP in the first place! However, if the investor is to have access to the AUP, the auditor universally requires the investor to sign a Catch 22 document which requires the investor to acknowledge that the AUP are "sufficient for their needs". So, even if the investor believes that the AUP are not "sufficient for their needs" - which is hardly a long stretch - the investor has to sign that the procedures are sufficient if they are to even see the auditor's work. With this magic piece of paper, the auditor has met its requirements and can sleep easy. Meanwhile, the auditor will send a bill to - guess who - the fund, meaning that investors have, once more, had to foot the bill.
As always, Caveat Emptor.
www.castlehallalternatives.com
Hedge Fund Operational Due Diligence
Kroll publishes an annual fraud report - we commented on the prior year edition here, and the new document is available from Kroll's website. Data was prepared in conjunction with the Economist Intelligence Unit.
As always, this is an interesting read, and we particularly agreed with the comments provided in the introduction:
"Fraud, corruption, and all that go with it may not have precipitated recession, but they certainly made its impact all the more painful. Losses, prosecutions, litigation, bankruptcies, were all sparked or exacerbated by the actions of groups or individuals in the years before; actions that went undetected and unpunished until too late.
The conventional wisdom is that fraud goes up in a recession. That isn’t necessarily true, as our survey shows. What goes up is the discovery of fraud, not always the same thing. Just like legitimate businesses, fraudsters are threatened by loss of income or the financial weakness of their businesses; Ponzi schemes are especially vulnerable. But other fraudulent areas – management conflict of interest, corruption, employee theft – also come to light when business conditions sour.
The data we have collected this year clearly highlights the industry hardest hit by fraud and wrongdoing: financial services. Over half of the respondents in this sector reported that the global financial crisis had increased levels of fraud at their companies – the highest figure for any industry.
Nearly 90 percent of firms reported being victims of some kind of fraud in the last three years. This sector also had the second highest proportion suffering from each of internal financial fraud and management self-dealing.
Unfortunately, though, over one in five financial services companies saw their internal controls weakened through cost cutting. It is understandable that in today’s climate, they should seek economies. But these will be false economies over the longer term if they lead to the resurgence of the same issues that so deeply damaged the industry in 2008-9.
“Tighter controls” will not be a popular rallying cry in Wall Street, the City or Nariman Point. The associated costs can be hard to bear in difficult times – but the cost of non-compliance can be harsher."
Exactly.
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Hedge Fund Operational Due Diligence
Back in January 2009, we published a post entitled "The Bonus Debate: Investment Banker or Heart Surgeon". Our target was the compensation structure of the investment banking industry - and pretty much the same applies in the world of hedge funds.
As we said at the time:
"It is not hard to agree that one of the primary causes of the global economy's rollercoaster ride from excess to catastrophe has been compensation. We have commented before on the many inconsistencies of hedge fund compensation and the fundamental weaknesses of the "2 and 20" structure. Indeed, Castle Hall's White Paper, "Hedge Fund Investing in a New World", discussed these issues in October 2008.
Against this background, we have been amused to read about Mr. Andrew Hall, the Phibro commodity trader who has a contractually bomb proof potential $100 million pay packet. Yet, on CNN this evening, there is a list of "top paying jobs": per CNN - "what other great careers from CNN Money's and payscale.com's list of Best Jobs in America offer great paychecks?"
The list is as follows:
1. Anesthesiologist: Median Salary $292,000, Best Salary $408,000
2. Physician/Obstetrician/Gynecologist: Median Salary $222,000, Best Salary $338,000
3. Psychiatrist: Median Salary, $177,000, Best Salary $279,000
4. Nurse Anesthetist: Median Salary, $157,000, Best Salary $214,000
5. Sales Director: Median Salary, $140,000, Best Salary $239,000
6. Actuary: Median Salary, $129,000, Best Salary $257,000
7. Finance Director: Median Salary, $121,000, Best Salary $214,000
8. Software Architect: Median Salary, $117,000, Best Salary $166,000
9: Attorney / Lawyer: Median Salary, $115,000, Best Salary $262,000
10: Insurance Broker: Median Salary, $114,000, Best Salary $273,000
To put all this in perspective, if you were a stellar commodity trader with compensation of $100 million per year, you would earn the annual salary of the median anesthesiologist in roughly 5.5 hours. So, arrive at work at 8:30 on January 1, you're done by 2pm.
As we said earlier this year, never has the gap between Main Street and Wall Street (or in this case a nice farmhouse in Connecticut) been so wide.
www.castlehallalternatives.comHedge Fund Operational Due Diligence
In one of our last posts, we began a series of comments discussing the current state of the hedge fund administration industry, with a particular focus on valuation. We promised that our next post would address some solutions to the "valuation dilemma", and we will return to this topic shortly.
Security pricing is a high-risk area for administrators, managers and prime brokers. It requires high quality data feeds, automated price validation systems and highly experienced staff. The risk of applying the wrong prices to a fund is ever present and extreme care is required to avoid this and any consequent reputational damage to the manager, administrator and prime broker.
It is also vitally important to consider the independence of the pricing process. Wherever possible, the administrator must independently price the assets of the fund. This is essential to preserve the actual and perceived independence of the NAV process and to protect the manager from accusations of bias. If the pricing environment of the fund is not rigorous, then the investors could be exposed to the risk of incorrect pricing.
However, there will be occasions when valuations of certain instruments can only be made by the manager and the issuer of the instrument, or by the manager alone. In such situations, it is important that the method of valuation is agreed with the administrator and the auditor before the fund is launched and that there is some way for both of them to check the pricing of the instruments during the life of the fund. The administrator should be able to assess the “reasonableness” of the manager’s and/or product issuer’s price.
In some cases, the administrator may be required to rely on prices determined by the manager, using its own pricing model for some specific complex derivatives instrument, for example. Although this is not desirable, there may be no alternative. In such cases, the administrator should:
1. ensure that the valuation procedure whereby the administrator is obliged to value the fund’s portfolio on prices based on the manager’s pricing model or formula is fully disclosed in the offering documents and the administration agreement;
2. ensure that the manager discloses both to the administrator and the fund’s auditor how the pricing model works and permits the auditor to carry out spot checks from time to time, to verify correct application of the pricing model; and
3. if possible, install the pricing model on its own system so that it can check the prices provided by the manager.
Armed with their own sources and the counterparty’s valuation, the administrator should be in a position to value the OTC position competently.
These provisions, therefore, provide specific guidance to the administrator when looking at OTC trades and, overall, create a "do as much as you possibly can" mindset. The guide continues:
Security pricing is a highly skilled area, requiring highly trained and knowledgeable staff. It should not be done by “part-timers” nor should there be duplication of effort. Ideally, each security should be priced once for all funds holding that security at that time. Control of this function is one of the central obligations of the administrator, who should be employing common pricing procedures across all of the funds it administers.
In all cases, it is important to consider the independence of the pricing process. Wherever possible, but subject in all cases to the fund’s pricing policy, the administrator should seek independent sources for the valuation of the assets of the fund. However, there will be occasions when valuations of certain instruments can only be made by the manager and the issuer of the instrument, or by the manager alone. In such situations, it is important that the method of valuation is documented, checked where a secondary source is available and reported to the pricing committee or board, periodically.
OK. So now it is "important", not "vitally important" to consider the independence of the pricing process. There is also a big difference between "wherever possible, the Administrator must independently price the assets of the fund" (which means that the administrator's prices would be used in the NAV) and "wherever possible, but subject in all cases to the fund's pricing policy, the administrator should seek independent sources for the valuation of the assets of the fund." Note also that we are now in a world where there "will", rather than "may" be occasions where valuations can only be made by the manager. We continue:
The pricing policy document should be approved by the board or governing body of the fund on a regular basis (annually or when altered).
It should be noted that while some HFAs have people, teams and service models which are capable of, and expert in, the calculation of recommended prices for individual securities, many others are not. A hedge fund manager or investor should not automatically assume that the HFA offers this service, employs this expertise or takes this responsibility.
Particular attention should be given to the governance aspects of the AIMA Guide to Sound Practices for Hedge Fund Valuation, as the observance of their principles should avoid any misunderstanding or lack of clarity around pricing and responsibility.
The Guide notes that the area of valuation has been topical and, in some cases, controversial. The role of the HFA has regularly been questioned and many investors and other industry participants have asked: “Is the HFA responsible for valuations?”
The Guide notes (and agrees) that both the AIMA and IOSCO documents suggest that it is the governing body that is ultimately responsible for the valuation of assets. In most cases, this is a board of directors or a general partner. Typically, the board will set a pricing policy.
The main thrust of the new document, therefore, is to revert attention to the pricing policy (and how many funds actually have one which really is detailed and comprehensive?) and place the administrator in a secondary, reactive role. The guidance is much more vague, and there is certainly not the same emphasis on the "essential" need for administrators to "independently" value assets. Moreover, there is now room for "many" administrators not to be "capable" and "expert" in the calculation of recommended prices for individual securities.
Our biggest comment though, is one we have made before. It remains utterly, utterly and utterly ridiculous to suggest that a Board of Directors comprised of two gentleman in the Cayman Islands with corporate secretarial backgrounds, who serve on the boards of hundreds of other hedge funds, can be "ultimately responsible for the valuation of assets" and "set a pricing policy". For investors who allocate tens of millions - or hundreds of millions - of dollars to individual hedge funds, this comment can best be described as disingenious fallacy. In fact, it is an insult to the intelligence of everyone concerned.
We would also point out that investors can pay the administrator millions of dollars per year for their services on some larger funds, while the average Cayman director gets $5-10,000 per fund. That would seem to place some framework around who has the better knowledge and who is better placed to get involved.
Perhaps the best comment, however, is the final "sound practice" guideline.
The governing body and the HFA, together with the investment manager, will then agree on how that pricing policy is to be executed. There may be specific responsibilities placed on the HFA in the execution of this policy but investors should not automatically assume a standard model.
AIMA, therefore, leaves us in exactly the same place as our own experience of current administration servicing. While some administrators do complete thorough and robust servicing, including detailed pricing, many do not. The message from the industry to investors, though, appears to be fairly casual - don't take anything for granted, or "automatically assume" a standard model. In other words, caveat emptor.
The real issue here - and one that must be addressed, sooner rather than later - is that post Madoff, post financial crisis, and post the greatest stress period the hedge fund industry has ever seen, hedge fund investors have increasing, not decreasing, exposure to managers pricing their own securities. We would have thought that all this pain would leave us with more protections - but no, we continue with all the evident risks that go along with managers marking their own books. Moreover, everyone concerned - managers, administrators, auditors - seem to assume that this is an entirely satisfactory state of play and, indeed, is "sound practice".
As the boy said to the naked emperor, it is not.
www.castlehallalternatives.com
Hedge Fund Operational Due Diligence
The magazine for Canadian Chartered Accountants (yes, it is that exciting!) has just published an article on fraud in the Canadian corporate sector, drawing on research by KPMG. Just to be clear, not everyone north of the border is engaged in defrauding penny stock mining companies!
Our first topic is, unsurprisingly, valuation. In Castle Hall's recent white paper on hedge fund operational failures, "From Manhattan to Madoff" (available here) we noted that "misvaluation of fund assets is the most significant, unresolved operational risk for hedge fund investors."
"We have settled a long-standing claim brought in arbitrationby a former hedge fund client. The claim relates to GlobeOp'sobligation to calculate and distribute the net asset value ofthe fund and the impact on that of mis-priced position values provided by a principal of the hedge fund's investment manager. The arbitration will be terminated and a settlement agreement was signed. GlobeOp expects that the cost of this settlementwill be approximately $27 million, net of $16.5 millionof applicable income tax benefits. The amount of the settlement is $43.5 million, with $20 million paid at settlement and the remainder paid over time with interestequal to the U.S. prime rate. The last payment will be February 2011. The settlement will be paid out of existingcash resources and will be a tax-deductible businessexpense during the year in which each payment is made.GlobeOp has no further liabilities outstanding in relationto this matter and the issue will have no impact oncurrent and future clients. We recently came across this old Dilbert cartoon - in the world of hedge funds, it would be funny if it wasn't so true.
The Hedge Fund Journal has just published a well presented list of the current Top 50 fund of funds (available here).
Bear with us - we'd like to tell a story....
A man walks into an auto dealership, having decided to buy a new vehicle.
The dealer and the customer agree terms, after which the dealer hands the customer the purchase contract to sign.
"Wow", says the customer. "This document is thicker than the last time I bought a car”.
"Ah", says the dealer. "Our attorneys continuously update our purchase agreement so that it reflects auto industy best practice."
The dealer is surprised when our customer asks to read the document – apparently many customers don’t bother to read the 72 pages of fine print.
Settling down, the customer turns to the first section, "Purpose of the Vehicle". Page 1 states "you have purchased a compact sedan, which is designed to provide efficient, trouble free motoring." There is a two page description of the specifications of the vehicle, including the bios of the chief designers, which all sounds pretty good. However, the final paragraph of the section states "while it is anticipated that the vehicle will focus on high fuel economy, efficient transportation, the Manufacturer will retain a broad and flexible manufacturing mandate. As such, the vehicle may also be lighter, heavier, bigger, smaller, more fuel efficient, use more fuel, have fewer or more seats, be a different color or otherwise differ in specification. Nothing in this document shall in any way limit the Manufacturer’s ability to change the specifications, performance or characteristics of the vehicle, and such changes may be made at the sole discretion of the Manufacturer without notice to the Customer."
"Hang on a minute" says the Customer. "It says here that, in the sole discretion of the Manufacturer, you can make the vehicle different in pretty much any way – don’t you have any responsibility to stick to what you originally sold me?"
"Oh don’t worry about that" responds the dealer. "That’s just some standard language put in by our lawyers and we have no intention of doing anything different. Don’t worry, you’ll be getting a great compact sedan."
The customer is a bit uneasy, particularly when he realizes that the phrase "in the sole discretion of the Manufacturer" turns up pretty regularly throughout the document. It’s also noticeable that nothing can be decided "in the sole discretion of the Customer."
A few pages later in the contract, the Customer gets to a section called "Manufacturing Errors". It says "vehicle manufacturing is a complex and sophisticated process. The Manufacturer will not be liable for any loss arising from errors or actions taken (or omitted to be taken) by it, howsoever arising, except to the extent that any such error is due to the gross negligence, willful default or fraud of the Manufacturer. As such, the Customer should be aware that bad fitting panels, incorrectly installed trim details, faulty electrics and similar items (collectively, "errors") are a normal part of the manufacturing process and will not represent gross negligence, willful default or fraud. Moreover, the customer should expect such errors to occur."
"Great" thinks the investor. "Pity I can’t say that sort of thing to my customers in my own business – they’d laugh me out of town if I tried that one."
The next section deals with disposal of the vehicle. The Customer wants to lease the car, so turns to the section which outlines how he can return the vehicle to the dealer: this is possible after a two year initial period, and thereafter every quarter with 45 days’ notice. There is also a section which allows him to return the vehicle early on payment of a 5% fee – all sounds fair enough.
There are a couple of extra sections, however. One says that the Manufacturer can elect to suspend the Customer’s ability to return the vehicle during any period in which, in the sole opinion of the Manufacturer, an emergency exists as a result of which the repurchase of the vehicle would not be "practically feasible". The Manufacturer also has the ability to create a "Repurchase Trust" at which time the vehicle will be transferred to the Trust and the Manufacturer will repay the customer over such time period as the Manufacturer, in its sole discretion, believes to be reasonable and appropriate. The Customer will, however, continue to pay the regular lease costs on the vehicle until the Manufacturer finally decides to sell.
The final pages deal with "risk factors". The list is pretty long, describing that motoring and usage of a car are hazardous activities. The many pages of risk disclosures remind the Customer, for example, that the car cannot be guaranteed to protect its occupants in any form of accident, that driving on rough roads could break the suspension, that the stability control can’t be guaranteed to work in wet weather and that wear and tear could impede any of the car’s capabilities and functions. The contract concludes that the Customer recognizes that he or she is a "sophisticated consumer" and that he or she will only purchase the car if they could afford to lose the entire vehicle and its purchase price.
The Customer has now taken more than an hour to read all this legalese and has a nasty headache. He calls over the salesman, who is still looking pretty confident.
"I have to say" says the Customer, "I really don’t like this contract. It’s a lot different to the one I signed a few years ago when I bought my last car, and there are so many terms in here which protect you in case something goes wrong. I really don’t understand – I’m giving you guys a lot of money and you are, you have to admit, a pretty wealthy and well-resourced company. It just seems like you don’t want to stand behind your product."
As it happens, the dealership’s manager is passing and overhears the Customer’s comments. "I appreciate your concerns" says the manager, fiddling with his Rolex. "However, this contract is based on the legal principle of ‘caveat emptor’, or ‘buyer beware’. We just want to be clear that we have told you what could happen after you have purchased the vehicle. In that way there are no surprises."
"Yes, but", replies the Customer. "Your risk factors, for example, outline virtually every possible eventuality. You guys are meant to be experts at manufacturing cars so I’m expecting you to build a good one that I can rely on. That’s certainly why I’m giving you quite a lot of my money. It seems very unreasonable that you are telling me that all sorts of bad things could happen and, pretty much no matter what happens, it’s not your fault."
The dealership’s manager thought for a moment and then looked back at the Customer. "Well, I hear what you’re saying but, unfortunately, I have no room to manoeuvre as this contract was drafted by our lawyers. You might also want to know that all the other car manufacturers use the same legal firm. As a result, all the car firms have the same sort of contract nowadays. Basically, it’s not possible for you to buy a vehicle at all unless you agree to these terms."
The Customer is very annoyed but realizes that, at the end of the day, he doesn’t have a choice. He’d like to argue about all these points but, if he wants to drive any sort of car, irrespective of the manufacturer, it seems that he’s going to be stuck with exactly the same legal shenanigans.
"OK, I’ll sign" he says, upon which the salesman produces the final invoice with a flourish. "Here you are" the salesman says. "You can see the purchase price, the destination and delivery charges, the taxes, and the legal and professional fees."
"I’m sorry" responds the Customer, surprised once more. "Legal and professional fees?"
"Oh yes" replies the salesman. "The costs of the attorneys we hire to prepare our purchase contracts are an out of pocket expense and are billed to our customers as part of the purchase price."
"Do you mean to say…." starts the Customer, as he begins to realizes how all this works….
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Hedge Fund Operational Due Diligence