Why Hedge Funds should “Go Long” Academia

Universities have incredibly strong brand names not only for innovation but also for integrity and impartiality. Universities’ history often goes back centuries and the breadth of their innovation is simply unparalleled. It is exactly universities’ track record for integrity and impartiality, which often makes them very attractive for businesses – unfortunately, I would add, often more than universities’ own track record for innovation.

We recently wrote about how Rothschild Italy is trying to “gain authority” in the real estate custodian market by signing a partnership with a local university. Signing a partnership with a university is a relatively common marketing strategy for companies, which want to be seen as “innovative and trustworthy”: by signing a partnership agreement the wise universities professors are giving a tacit approval of the company’s work. Plus these days, signing a partnership with a university (depending of course on which one) is relatively cheap as universities always need money, so no short-supply of integrity providers!

Looking critically at the financial sector, one specific industry which needs ‘legitimisation and integrity’ more than others is undoubtedly the hedge fund industry, and industry which has fallen prey of its own rotten apples and is now suffering from reputational issues, mostly caused by a few high-profile cases, which caused public opinion to turn heavily sour.

So the first hedge funds’ countermoves are starting and university partnerships between hedge funds and (mostly) universities’ finance departments (but also applied mathematics, physics, economics and statistics) are high on the agenda and blossoming these days.

Today, for those of you interested, we want to write about one particular case and perhaps one of the oldest cases of “hedge fund-academia partnership”; in 2004, BNP Paribas (a large French bank) in collaboration with the Singapore Management University and Fauchier Partners (one of the oldest hedge funds in the industry and one in which BNP has a stake) set up in 2004 the BNP Paribas Hedge Fund Centre, a research centre fully dedicated to study the hedge fund industry: returns over time, correlations, market influence, potential collusion practises and  many other interesting topics (we strongly recommend you to skim through the hedge fund research papers freely available on BNP Paribas Hedge Fund Centre’s site in their research section).

The reason which brought about this partnership may not be the best one (after all “piggy-backing” on someone else’s reputation is not the most ethical thing to do) but it may be bring good advantages in the long-run, as academic research can add extra dimensions to the industry; importantly, good independent academic research may be able to provide good arguments (based on actual empirical evidence) as to why the hedge fund industry is not as bad as it is portrayed in the public eye.

So, this is why hedge funds should go long academia: no short-term gains here but a long-term investment which will certainly benefit the industry as a whole; long-term capital appreciation.

One last interesting fact for our readers: one of the oldest and most respected figures in the hedge fund world is Patrick Fauchier (the founder (1994!) of Fauchier Partners): before setting up one of the oldest hedge funds in the industry, Patrick was actually an academic: an Assistant Professor of Biochemistry at the Université de Paris V and he ran his own specialist dental practice for 17 years (yes, a dentist turned (successful) hedge hedge fund manager!).



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