One of the unintended consequences of technology improvements in the hedge fund industry has been the sheer volume of data that service providers, in particular fund administrators, are required to manage on a daily basis. ‘Big data’, ‘data management’, ‘data farming’ – these terms are increasingly being used in the current vernacular.
With granular data comes greater transparency – something institutional investors are demanding of the managers they invest with. Chad Allen (pictured), Managing Director in UMB Fund Services’ alternative investment servicing division, says, “Historically, managers relied solely upon their in-house systems for information – but increasingly they are asking for more data from their administrator in order to track their investments and investors in greater detail.
“For example, for FoHF and fund-of-private-equity-fund clients, we now complete detailed investment subscription documents on the fund’s behalf and provide custody for those assets by way of our affiliate, UMB Bank, n.a.”
Clean, accurate data is a valuable commodity today. For example, managers can use UMB Fund Services to search data on the fund’s portfolio as well as load extracts into their own systems for further data analysis such as risk analytics.
“Managers want to understand how we are gathering, valuing, reconciling and reporting their data,” says Allen. “In addition, they want details on their investors’ capital balances, transaction history and demographics.
“Even investors are demanding more portfolio transparency. They want to make sure the manager is sticking to the strategy defined in the offering documents. They want to see more fund performance data, risk analytics and benchmarking than they have in the past.”
Integral to these data management demands is technology. UMB Fund Services uses a best-of-breed third-party system for portfolio accounting but has a proprietary system for other functions where the most customisation is needed. Its internal IT team develops proprietary software code, which, says Allen, “enables us to customise and write reports to meet the demands of our clients and their investors”.
“Institutional investors drive the flow of data in terms of what they want and when they want it. Asset managers do all they can to attract the large dollars. Often we are asked to provide large amounts of data so they have it if the need arises. We develop new reports and extracts as our clients need them.”
Is there a danger of too much data being made available? Allen responds: “The manager is often hesitant to provide too much detail on the portfolio in order to protect their trading strategies. But no matter what is provided, there should be equality. What you provide to institutional investors you should provide to all investors.”
To share this data, UMB Fund Services has developed a web portal that both the manager and its investors can access. The portal lets the manager see each investor’s demographic – an important feature for Form PF and FATCA requirements. Additionally, investors can see their specific investment in the fund and other general fund data.
“A manager can log on to the portal and see the fund’s portfolio of investments, a full set of financial statements and all supporting documentation in order to approve the NAV. Following approval, investors are notified via email to log on to the portal and obtain current and historical data such as investor statements, year-end audits and K-1 schedules,” concludes Allen.
