16 September 2010

Still no end to conflicts of interest

One of the areas where PBA helps clients to navigate the investment scene is the prevention of possible conflicts of interest among the client's money managers. Recent trends in the regulation of financial service firms also tend to strengthen this aim. So it is with curiosity and surprise that we learn that a major player in the private banking industry has just taken a stake in a large hedge fund business (Credit Suisse pays $425 million for a 30 per cent stake in York Capital Management). The deal may well work out for CS - it certainly will for York's management. But Private Banking Advisory has reservations about a bank's investment advisers recommending in-house funds. While CS only owns a stake in the profits this creates a possible conflict of interest. And does a bank like Credit Suisse really need to buy access to a fund? If performance at York weakens what will the bank then do? Will the advisers still give preference to York's funds? and if there is no preference - as it should be - to begin with, why buy a stake?