The administration of traditional long-only funds has been transformed over the past decade by the use of comprehensive IT systems.
The administration of traditional long-only funds has been transformed over the past decade by the use of comprehensive IT systems. They have automated processes that used to require extensive, costly and error-prone manual inputting. The greater complexity of hedge fund investment strategies and instruments has complicated the task of replicating this success in the alternative investment sphere, although important strides have already been made. This is particularly important for Dublin, because automation can alleviate some of the strain imposed on the sector by the high demand for experienced staff.
CACEIS Investor Services has been investing strategically in technological solutions, such as interfaces with all the main prime brokers. However, a continuing challenge is posed by the way hedge fund managers seek out new kinds of derivative and other investment products. Every time technology catches up with the latest product, another – slightly different – variation is coming behind. And so the process must start again. What’s required is a system that’s flexible enough to adapt to new strategies and product development.
Meanwhile, prime brokers are increasingly recognising that they need to work with administrators and other service providers in order to provide automated trading information and automated price feeds. This has not been a strength of prime brokers in the past. The difference today is that their hedge fund clients now often come from financial institutions. They require a robust administrative and risk management process and they are pushing their prime brokers to work more closely with administrators.
CACEIS Investor Services has responded to these new requirements by investing in the latest technology, Reuters Kondor +, which is also used in the front office of more sophisticated alternative investment managers. It offers comprehensive coverage of all instruments, from vanilla assets to exotic derivatives and structured products, and can communicate with third party systems to provide STP solutions for both trading and reconciliations.
However, there remain considerable barriers to greater automation in the area of funds of funds. They are a unique product, and two aspects of administration in particular remain largely manual processes. Subscription to an underlying fund involves faxing a subscription form to the fund’s administrator within the deadline to ensure the money is invested, while obtaining underlying fund valuations may still involve calling various administrators to collect the latest NAV prices.
In response, CACEIS has put in place ‘Fund’s Hub’, a specialised team of experienced people for its fund of hedge fund clients. They handle all subscription and redemption requests and collect all pricing information, building up a relationship with the various underlying administrators. They deal with over 350 onshore and offshore registrars and collect periodic information on around 2,000 hedge funds.
CACEIS’s excellent mutual fund compliance systems have been adapted to cover alternative funds as well. It has also launched a flexible performance measurement service that provides a wide
range of performance calculations such as portfolio return, performance contribution and attribution and risk ex-ante calculations. Of course, technology is simply a tool to service our clients better. We must always focus on having experienced, flexible, highly motivated staff who can work with our clients to support them in developing their businesses.
Clara Dunne – senior country officer for CACEIS Investor Services in Dublin
