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AIMA Canada chief joins call for improved disclosure

Date: Wednesday, October 18, 2006
Author: Lori McLeod, Financial Post

The U.S. government and regulators are calling for better public disclosure from hedge funds, and the new head of Canada's alternative investment industry association said yesterday he believes this is a "healthy" point of view.

"I personally think if you're managing money, you're beholden to provide information," Phil Schmitt, chairman of the Canadian arm of the Alternative Investment Management Association, said in an interview.

"I think what has been perhaps a lack of transparency in the industry could do itself some justice by being a little more open with investors," he said. "I don't know that the industry necessarily sees it that way, but I think that's a healthy perspective."

Mr. Schmitt, who now runs his own investment management and advisory firm, spent more than half of his 25 years in the financial services industry at Toronto-based hedge fund Polar Securities Inc.

He has also worked in sales, research and trading at the former Burns Fry Ltd., Wood Gundy Ltd. and TD Asset Management, and has chaired or served on committees for groups including Market Regulation Services Inc., the Investment Dealers Association of Canada and the Toronto Stock Exchange.

He was elected to replace former AIMA Canada chairman Jim McGovern this month, a challenging time to be taking the helm at the self-described "voice" of an industry that has come under increased scrutiny after the recent multi-billion-dollar blow-up at U.S. hedge fund Amaranth Advisers LLC.

"Any time there's a negative event, it's a setback," Mr. Schmitt said. "It's a story the industry has to deal with." Rather than damage control, however, Mr. Schmitt said his chief role will be to continue Mr. McGovern's efforts to educate investors about alternative products.

"If you look back at investment products in days gone by, it takes time to accept it and figure out how to use it and demystify it," he said, pointing to the example of exchange-traded funds, which have only recently become widely accepted by investors. "Hedge funds will go through a product cycle, and are already being accepted into many different investors' portfolios, but it takes time. There's a teething process."

For the money managers that belong to AIMA, Mr. Schmitt said one of the biggest challenges will be how to manage their growth.

"Certainly, there are effects on the industry that are transforming it -- it's a completely different industry than it was five or 10 years ago," he said. "I don't think its a problem ... but you have to manage your firm so you're still able to return to people what you've told them you will, even as your firm and funds grow."