Executive summary
 

• If you compare a hedge fund to a football team, you could argue that Compliance is best represented by the goalkeeper.
• As with goalkeepers, Compliance is becoming more influential in the way their team is run but the stakes are high, and mistakes can be costly.
• Both are team games. Like the goalkeeper, Compliance needs to work well with other departments to ensure the team’s overall success. 

Below, I have compared some of the departments of a hedge fund to a typical set up of a football (soccer) team with a ‘4-4-2 formation’. There is no right or wrong here and one can debate the formation set up and the assignment of departments forever and a day. Hopefully, I have piqued your interest with this analogy even if you do not usually care for football!

Key:

• “GK” = Goalkeeper
• “CB” = Centre Back; “LB” = Left Back; “RB” = Right Back, all of whom form the “Defence”
• “CM” = Centre Midfield; “LM” = Left Midfield; “RM” = Right Midfield, all of whom form the “Midfield”
• “S” = Strikers, who form the “Attack”

Compliance is the goalkeeper

The role of a goalkeeper? Keep the ball out of the back of the net. With reference to Compliance, ‘keeping the ball out of the net’ means, in its simplest terms, not having any regulatory breaches. Historically, these breaches were at firm level but with regimes such as the Senior Managers and Certification Regime (SMCR) in the UK, Manager-in-Charge (MIC) in Hong Kong and the Individual Accountability and Conduct Regime (IAC) in Singapore, individuals are now more at risk of being punished by regulators than ever before. This all means ensuring that Compliance is up to date with all applicable regulatory requirements, educating staff where relevant and ensuring that all investment guidelines (whether external – e.g. a UCITS fund –or internal) are correctly mapped and implemented in your order management systems. In other words, get the basics right. Know what your firm can and cannot do. Also, understand what your firm should or should not do, accounting for your firm’s own risk appetite, current areas of enforcement/regulatory focus and understanding what peers are doing. 

The role of goalkeepers is now shifting, with more decisions for them to make. For example, is a short pass to the defence the optimal decision or is it better to kick the ball ‘Route One’¹ style to the midfielders/strikers? Likewise, Compliance must constantly assess when to escalate, when to advise and when to hold the line. Decision making for Compliance has always been vital but now more than ever, given the individual accountability regimes noted above. Higher pressure. Higher stakes. One mistake can cost your team the game (or your firm its regulatory licence, depending on how egregious the mistake was), irrespective of the number of saves made beforehand.² Some of the very best goalkeepers play for teams where they are not called into action for most of the game but when they do, they know what decisions to make and when. 

Compliance’s influence on the business (in hedge funds in particular) has grown and firms whose Compliance teams work closely alongside the business (instead of against it) will prosper in future. It is the same with goalkeepers – they are becoming a more influential part of the game than before – e.g., comparing transfer fees and contracts being commanded by the best goalkeepers in the world now versus 20 years ago. 

Who else made the starting XI?

Defence (CB/LB/RB) = Operations/Finance/IT

Whether it’s a daily reconciliation process, trade matching, ensuring enough capital has been injected or ensuring that the right IT vendors have been selected and that everything is working as it should with the right cybersecurity controls, I argue that a good mixture of these three departments would make a good defence. Strong policies, procedures, and controls here are vital, meaning fewer errors and mistakes so mistakes are kept under control, irrespective of what is happening in ‘attack’ ahead of them.

I would argue that Compliance is most likely going to speak with the ‘defence’ on a day-to-day basis to ensure that processes, procedures, and controls remain fit for purpose and are being implemented accordingly. However, it is vital for Compliance to have ongoing communication with all team members to ensure it understands the direction of travel for the business and how Compliance can help the firm get there. 

Midfield (CM/LM/RM) = Risk/Research Analysts/Execution Traders/Treasury

Midfielders carry the ball up the field and have excellent passing accuracy, and attacking midfielders put through balls/crosses into the box, in both cases creating scoring chances for their strikers. 

Research analysts and execution traders are akin to these roles with both the recommendations that they come up with and how to achieve best execution once an idea has been agreed to.

Defensive/central midfielders control the tempo by keeping possession and create space around them to let the attacking midfielders and strikers put themselves in promising positions to pounce. Giving the nature of what both Risk (managing market, credit and liquidity risk amongst others) and Treasury (managing cash, collateral, optimising liquidity and reducing financing costs) do, my view is that this is where those teams are best placed on a football pitch, comparably.

Striker (S) = Portfolio Managers

They say the hardest thing to do in football is to put the ball in the back of the net. This is why strikers are the most coveted position. The greatest spotlight. The highest paid. The most scrutiny. In a crude nutshell, it is the same for Portfolio Managers, is it not? Their decision making ultimately dictates the success (or failure) of their fund. 

Manager = Chief Investment Officer (CIO); Assistant Manager = Chief Operating Officer (COO)

It is vital the CIO and COO collaborate efficiently with each other, especially given their responsibilities for team selection, strategy selection and motivation, with the aim of getting the best out of the team individually and collectively.

The manager must have unfettered confidence in their assistant manager and that relationship is no different between a CIO and their COO. In football, the assistant manager is not usually in the limelight but their work with all the players cannot be underestimated. This rings true for COOs when they collaborate with both investment and non-investment staff. 

Final whistle/full-time

A strong Compliance function does not just react – it anticipates, adapts, and contributes to team success. Clean sheets are not lucky – they are the result of preparation, collaboration, and smart positioning. 

Compliance, like goalkeeping, is a lonely job when things go wrong, but essential for things to go right. The best funds understand that and make Compliance a core part of their game plan. 

^{1 Route One originated from a 1960s TV quiz show called “Quizball” in which questions (graded in difficulty) led to scoring a goal, with Route One being the direct path.}

^{2 “Individual bouncebackability” for Compliance when one makes a mistake is very important, as I have noted previously.}