Multiple and powerful pressures are impacting the hedge fund industry, but two are particularly prominent: a dramatically increased regulatory burden, and investor demands for greater transparency and lower fees.
Far-reaching and complex new rules continue to reshape the environment, from Dodd-Frank and EMIR to FATCA and AIFMD. To meet these stringent regulatory responsibilities, and keep pace with evolving investor best practices, hedge funds will need to adopt a firm-wide “culture of compliance.”
Non-compliance not an option
Satisfying regulatory rules and investor demands may seem like a costly headache, but compliance is simply good business. Poor or non-compliance risks:
- More frequent regulatory examinations.
- Potential enforcement actions.
- Higher legal fees and other expenses.
- Employee morale issues and attrition.
- Distraction from business priorities.
- Reputational damage.
- Loss of existing and prospective investors.
Institutional investors in particular demonstrate a preference for greater transparency, accountability and operational rigour from the managers with which they invest. Given what’s at stake, compliance may be as important now as investment performance.
Technology-enabled compliance
Increasingly, a robust technology infrastructure is at the heart of any truly competitive, operationally-efficient, customer-focused and compliant hedge fund business. Key technology components include:
- Order Management Systems for accurate and efficient trading
An advanced trade order management system can handle higher volumes and greater instrument sophistication, mitigate trade-related risks, improve execution efficiency, maintain trading activity audit trails and support seamless reporting.
- Portfolio Management Systems for transparency
A state-of-the-art portfolio management system helps firms price and value holdings accurately, adhere to industry-standard performance measurement practices, and deliver real-time information for regulatory and client reporting.
- Multi-Series and Investor Accounting
Integrated investor accounting systems can perform automated book and tax allocations among investors through multi-tiered fund structures, automate rate of return calculations and NAV computations, provide look-through reporting and send account statements to investors.
The ability to demonstrate compliance and best practices will only grow in importance, especially when attracting institutional money. Rather than a burden, compliance instead offers opportunities for savvy hedge funds.
Does your technology platform enable you to meet all your compliance responsibilities seamlessly and efficiently? Take this 60 second test to help pinpoint your current strengths and areas you need to improve.
