In the face of this year’s fierce market tumult, the best accounting firms have stepped up and differentiated themselves.
“Clearly, it’s been a challenging time for the entire investment management business,” says Howard Altman, co–managing principal in charge of financial services at Roseland, New Jersey–based Rothstein Kass & Co. But times like these reaffirm the value of sound accounting firms. “It’s just the nature of a professional services firm that if you’re not on top of your client’s business, you’re not going to succeed.”
Rothstein Kass moves up one place this year to clearly emerge as the favorite accounting firm, according to hedge fund managers both small and large.
Part of the reason is the firm’s aggressive move to help clients interpret standards that fall under the rubric of Financial Accounting Standards Board Statement No. 157, better known as FAS No. 157, the new accounting rule that sets more stringent standards for valuing assets. FAS No. 157 carries enormous implications for hedge funds. It requires them to divide assets according to liquidity and to document how they estimate the value of assets. The rule also makes it easier for investors to press for more detail than some have traditionally received.
“We’ve recognized — and have for months — that we need to proactively communicate with our clients about this,” Altman says. “We’re doing that literally every day, to make sure their questions are being answered.”
The firm has maintained its service standards in part by growing alongside clients. In mid-August the payroll head count at Rothstein Kass was roughly 860; Altman expects that by the end of 2008 it will approach 950. This month the firm is opening its eighth domestic office — in Irvine, California.
BDO Seidman, which drops one place this year, to No. 2, attributes its popularity to what Robert Castro, managing director of financial services for the Chicago-based firm, calls its “bedside manner.”
Castro says that to help keep standards high, the firm aggressively seeks feedback from clients. He also says it helps that the firm is selective about taking on new clients and turns away fund managers when it seems that client service could be sacrificed because staff would be stretched too thin.BDO Seidman, in addition to rave reviews, gets lots of business too: Castro estimates that the firm’s hedge fund client base is up about 20 percent this year.
Deloitte Touche Tohmatsu, No. 3, is the highest ranked of the Big Four firms (Deloitte, KPMG, Ernst & Young and PricewaterhouseCoopers). New York–based Cary Stier, head of Deloitte’s U.S. asset management services, says FAS No. 157 places a greater onus on hedge funds to produce accurate valuations, a circumstance that puts Deloitte at an advantage over competitors because the firm hasn’t spun off its specialized consulting business, as have some other big firms, Stier believes. “We’ve got a deep capital markets group,” he says. “It also means we have a very extensive financial advisory services group, and they have deep expertise around valuation.”
KPMG jumps three places, to No. 4. The global firm, which employs more than 3,000 investment management professionals, earns especially high marks for regulatory and compliance work.
Sean McKee, New York–based audit sector leader for KPMG’s asset management practice, says FAS No. 157 has created more demand for the firm’s expertise. “We understand that communication is of the utmost importance,” McKee says. “One of the interesting challenges with 157 is getting everybody reconciled with their thoughts. This includes the managers, the auditors and the administrators — who’s going to handle what responsibilities? It’s a challenge.”
HOWARD ALTMAN
Co–Managing Principal, Rothstein Kass & Co.
Are hedge funds — short-sellers, in particular — the new whipping boy of the financial world?
As this crisis has developed, some politicians and people in the media have aimed blame for it at hedge funds, especially some of the short-selling ones. But shorting has been essential to a wide range of wealth preservation strategies, and it’s fundamental to business operations. When a short-seller looks at a company and questions the management, it may spotlight companies that are underperforming and force changes.
What kind of changes will this crisis force?
A monitoring of counterparty risk is among the likely outcomes. There will be an aggressive regulatory framework after a new administration takes office, no matter who’s elected. As far as a focus on market transparency — I’m not so sure that’s the right answer. Capitalism has to take the lead here.
How will your firm be affected?
Usually, increased compliance and regulatory mandates mean more demand for services from our firm and will drive a demand in consulting and auditing services. We may see some contraction in our client base, but we’re literally adding clients as we speak.
