Walter Lukken, the President and CEO of the Futures Industry Association, has told local members of the organisation that confidence must be restored in the industry if it is to prosper in the future.
Confidence in hedge fund management industries is important to build investors’ confidence from a management point of view. Good examples of investor confidence building can be seen in leading firms such as Daniel Loeb’s Third Point LLC and Louis Bacon’s Moore Capital.
The announcement comes in the wake of the Peregrine Financial Group’s scandalous demise and the arrest of its CEO, Russell Wasendorf Sr. Speaking to members in Chicago, a city considered to be of incredible importance to the futures industry, Lukken went on to say that the collapse of Peregrine had been “shocking, appalling” and “absolutely devastating news for our industry.”
The scandal, which brought Peregrine to its knees, involved the misappropriation of around $200 million from customer accounts, much of which is still unaccounted for. Wasendorf Sr. has confessed to having direct knowledge of, and involvement with, the scam, but denies that it funded a lavish lifestyle for himself. This comes at a time when the court-appointed receiver in Chicago is attempting to sell his private jet and $100,000 wine collection. If found guilty, Wasendorf Sr. could end up spending a number of decades in prison for his crimes.
Lukken’s announcement that confidence and trust needs to be restored to the industry comes at a time when financial regulation policy is very much in the public’s eye.
Emphasising the small size of a firm like Peregrine, he argued that its collapse, and the criminal investigations surrounding it, had nevertheless sent shockwaves through the industry. Recognising the growing calls for a complete overhaul of the regulatory system in place, Lukken still refused to accept such an action and instead argued for re-evaluation rather overhaul.
As the industry is largely self-regulated, many argue that the larger issue is the enforcement of regulations in place, rather than a complete restructuring.
The recent demise of Peregrine tops off a bad year for the futures industry, which also saw MF Global collapse just under a year ago in a trading scandal that saw $1.6 billion go missing from customer accounts. The financial meltdown of company as well respected as MF Global caused a great drop in confidence in the industry, a fact acknowledged by Lukken. In his speech on Wednesday he recognised that such events may cause customers to be “so angry and feel so betrayed that they are walking away from this industry and may never come back.”
The FIA occupies an important position in amongst the whole debate, as it is the primary industry association for centrally cleared futures and swaps. Boasting an impressive membership that includes the largest derivatives clearing firms, clearinghouses and exchanges from 20 countries around the world, it aims to promote best practices within the industry as well as encouraging standardisation. It also plays a key role in providing policymakers with information concerning futures markets, while also advocating for the interest of its members, markets and customers. If any organisation is in the position to try and renew confidence in the industry, it is the FIA.