The drive to keep pace with the fund of funds industry
The fund of hedge funds sector is still growing strongly despite intermittent predictions of its demise. In fact, as more institutions enter the hedge fund market, fund of funds managers are continuing to see strong capital inflows.
But, despite the growth in assets under management, many rely on outdated internal systems, and those that have tried to modernise have often been stymied by a lack of robust technology offerings.
'From a technology perspective, funds of hedge funds are a very under-served and under-automated market,' says Meredith Jones, managing director of PerTrac Financial Solutions. 'Many firms have rudimentary systems, whether they manage USD50m, USD500m or USD5bn.'
These systems often consist of a series of linked Excel spreadsheets, with separate workbooks for subscriptions and withdrawals, investor balances, performance and NAVs and foreign exchange hedging. 'The fact that some of the best minds in the financial industry must rely on technology that cannot keep pace is almost mind-blowing,' Jones says.
The lack of a cohesive and comprehensive portfolio management system can negatively affect returns and damage overall profitability. It is essential, for instance, to know where to find liquidity in the event of unexpected or large redemptions. With anything between a handful and 100 managers in a portfolio, all with varying redemption terms, finding liquidity is easier said than done. And that's just one component of the overall portfolio.
PerTrac, working with London-based fund of hedge funds firm Caliburn Capital, has developed a dedicated solution, Pertrac Portfolio Manager, which it believes will end manual inputs and sluggish outputs. According to Jones, the new workflow system adds value in a number of ways.
To start with, it improves performance by giving high-level visibility over all aspects of the fund. 'Viewing only one of the moving parts in a portfolio is not optimal,' she says. 'To maximise returns, it is crucial to understand the details and how those details work together to create the total return.'
The system also helps ensure that fund of funds managers do not take greater risk than they intend. They can check at a glance with customisable charts, set risk limits and risk flags, and keep checks on portfolio, geographic and strategy limitations.
The system aims to save managers time to focus on fund selection, due diligence and monitoring. Time-saving tools include cash management capabilities that allow managers to easily enter inflows and outflows, account for operational costs, handle series rollups and hedge currency exposure.
Jones says Pertrac Portfolio Manager allows a fund of funds business to scale more effectively, reducing the need for new hires. In addition, she says, having a robust, comprehensive portfolio management system can be a competitive advantage and attract additional assets under management. It can also increase client satisfaction through the ability to respond quickly to queries. Finally, it reduces errors since the fund of funds is freed from manual calculations.
Pertrac Portfolio Manager has just gone live after testing with a number of funds of funds since June. As a result of tester feedback, PerTrac has added new features such as a leverage model, and has future functionality in development.
Jones believes it is genuinely pioneering. 'Our largest competitor in this space is Microsoft Excel,' she says. 'Bill Gates is a worthy opponent, but we believe that most people managing multi-manager portfolios will find PerTrac Portfolio Manager the better solution.'
Meredith Jones, managing director, PerTrac Financial Solutions
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