Hedge fund accounting in the investor’s spotlight
Transparency is one of the watchwords of the age. Predating the crisis, the big shift within most hedge funds’ investor bases from high net worth individuals to institutional money brought with it a significant change in expectations. The new hedge fund investors started to require more detailed reports from managers and were more demanding in areas such as valuation processes, standards and operational integrity.
All this has only intensified post-Madoff and post-Lehman. Our customers tell us that they are having conversations with their investors every single day about these issues, and more than ever they need to be able to demonstrate the integrity of their NAV and to have information about their portfolios at their fingertips.
There is now evident demand from investors for regulated and transparent products. Hedge fund managers have responded by offering fund structures such as separately managed accounts and, in Europe, hedge fund strategies within Ucits III-compliant vehicles.
Regardless of the legal structure, fund accounting is one of the areas most in the spotlight. The right purpose-built technology can really help fund managers to run tight operations and to show they are on top of their portfolios.
With the shift for many funds from a single prime broker to multi-prime, it has never been more important for them to have their own books and records, and to reconcile daily against both prime brokers and their third-party administrator. And talking of the administrator, we detect that the practice of shadowing the administrator’s books is more prevalent than had been thought, even if at some funds this is still done using spreadsheets and manual effort.
SunGard’s VPM is the only hedge fund accounting system on the market that was designed from its very first conception specifically to be a hedge fund accounting system, and over the years it has been developed in partnership with some of the most demanding people in the hedge fund community. This is one of the main reasons why VPM was recognised as Highly Commended Fund Accounting and Reporting System at the recent Hedgeweek Awards.
Going forward, we think investor accounting is one area where technology will play a bigger role in future. We continue to be surprised at the number of even large hedge funds that run robust processes in their operations and portfolio accounting, but rely on spreadsheets for investor allocations and distributions. Another area of importance is client reporting, especially where this can be automated over a secure web-based portal.
Paul Compton is head of product management at SunGard’s alternative investments business
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