Meeting the operational challenges
Interview with Ed Gouldstone (pictured), Linedata – Whilst managers might welcome investor requests for managed account mandates given today’s tough capital raising environment, the reality is that, operationally, they still present certain challenges. Ten years ago, most managers would have balked at the idea of taking on managed accounts, but that mindset is starting to shift.
“A fund manager doesn’t necessarily want to flat refuse such a mandate, they want to consider it. However, there can be a significant cost to getting the infrastructure ready and building additional relationships,” observes Ed Gouldstone, head of hedge fund product strategy at Linedata.
There are numerous operational challenges that managers need to consider before taking on managed account mandates.
First is to understand how the mandate will impact the front office team. An investor might like a manager running a long/short equity strategy but request that they run the long-only portion of the book in the managed account.
“That gives the manager a potential problem in terms of how idea generation turns into actual trades. That’s where OMS technology, which we offer as part of Linedata Global Hedge, can be helpful. If your OMS allows you to translate those rules so that your ideas can be implemented through the main strategy and appropriately converted using new rules into the managed account, then a manager will be flexible enough to say ‘Yes, sure, let me know what your restrictions are’,” says Gouldstone.
Linedata Global Hedge is the firm’s latest solution and is a comprehensive and modular platform integrating all of Linedata’s products for the hedge fund market.
Commenting on how the Linedata Global Hedge trading and order management module is able to overcome this front office challenge, Gouldstone adds: “The ability for a portfolio manager to place his order in the OMS and have it automatically reflected across managed accounts which are running pari passu to the commingled strategy or else apply specific rules pertaining to the specific mandate(s) is a key part of our front office technology strategy.”
A second, potential challenge is having to develop new relationships with service providers. Large institutions who want customised solutions will often insist on using their preferred administrator, custodian, and prime broker(s).
“From an operational perspective this involves adding new relationships, a new reporting solution, running a separate reconciliation process, all of which needs to be presented in an aggregated format to the front office team.”
Along with the software toolkit provided by Linedata Global Hedge, the platform is able to help managers overcome this relationship challenge. Confirms Gouldstone: “We have standard connectivity to 30-plus prime brokers, 50-plus administrators, giving the client access to a library of connections they may need.”
Third is the bespoke reporting challenge. Managers are required to provide more granular information on a more frequent basis for investors.
“We have a number of clients who have to produce reports in a variety of different formats, which does present quite a challenge,” says Gouldstone, pointing out that the goal for a manager, every time they take on a new mandate, is not to have to bring on new operations staff and systems.
“We work in partnership with risk providers to provide standard reports on various risk parameters, scenario analysis and stress testing. Additionally, we have the Linedata Global Hedge reporting aggregation layer. That allows us to put together reports across all the different modules, be they front office trading statistics, accounting information, risk exposures etc.”
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