UK - Goldman Sachs in the US has vigorously defended the use of pre-hedging in transition management, providing a strong indication that any attempt to ban the practice globally would be met with heavy opposition on its part.
Pre-hedging – trading on the knowledge of a clients’ impending re-allocation of assets – is set to be prohibited under the UK transition management industry’s impending T-Charter.
Global Pensions exclusively revealed in July that Goldman’s had withdrawn its support for the T-Charter after failing to reconcile differences with members of the sub-committee responsible for drafting the code.
Industry sources confirmed pre-hedging was the key point of contention.
Speaking at a Global Pensions’ round table in New York, Jason Gans, vice president, transition management at Goldman’s, said: “Pre-hedging, unfortunately, has gotten a negative connotation in the transition world. This process has been going on in programme trading for many years and clients all over the world have been satisfied with the outcomes.
“It’s our philosophy that disclosure and transparency is very important, and there are certain times when clients come to us and ask us for a disclosed risk bid. All those risks involved with pre-hedging are communicated to the client. So whether it’s committing principal to transitions or committing principal to our programme clients, it’s done when clients are aware of it, and that’s the bottom line.”
Peter Herbert, managing director of transition management at Goldman’s, added that the firm’s pre-hedging language was in its documentation.
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