One of the key benefits of the platform-as-a-service model is that it gives smaller and emerging hedge funds the chance to utilise industrial-strength technology tools and applications that are commonly afforded to only the industry’s largest management groups.
One of the key benefits of the platform-as-a-service model is that it gives smaller and emerging hedge funds the chance to utilise industrial-strength technology tools and applications that are commonly afforded to only the industry’s largest management groups.
Siepe, a leading provider of data management and IT solutions, was founded in 2012 and has evolved to offer investment management solutions – spanning portfolio management analytics, performance attribution and data warehousing – and managed IT cloud services to empower hedge funds to scale quickly and efficiently, in lockstep with AUM growth.
The firm thinks of itself as a technology advisory services business that works in harmony with its clients to achieve the optimal business outcomes that any good COO/CFO is driving towards.
“Our experience and subject matter expertise in the hedge fund space is valuable and I think the industry should take advantage of people who can bring that substance to the table,” says Jilbert El-Zmetr (pictured), Head of MSP Operations at Siepe. “We help COOs make the right decisions and that’s the kind of relationship hedge funds should strive for with their technology providers; whether it’s front- to back-office systems, managed services technology, cybersecurity, compliance, etc.”
Managers become more dependent on technology as their fund evolves and grows, and investor due diligence increases. To overcome what can appear a never-ending technology conundrum – How much to spend on IT? How many tasks to outsource? What technology is appropriate? – COOs should look to partner with vendors who take a more consultative approach to the relationship; those who invest time in the client to understand their fund strategy needs.
“Vendors should then be able to provide the most appropriate technology solution and collaborate with the client through the onboarding/implementation process,” says El-Zmetr. “The vendor should look to continually develop the relationship; it shouldn’t be purely transactional.
“We may not have all the tools a manager needs to achieve their objectives but we will bring our expertise to bear and support them in using the tools we do have, whether these relate to our managed services technology on the public cloud, data warehousing, or data visualisation, all the way through to workflow tools which aid investment from a research management perspective. We then integrate those tools so that they work seamlessly for the fund, allowing them to leverage their data in a transparent way and reduce operational risk.”
Doing so not only gives the manager a best practice solution from a compliance or an alpha generation standpoint, it also helps provide them with a single source of truth on which to build a competitive edge.
“We spend a lot of time advising COOs on which pieces of technology they need, and we introduce them to other service providers to support them in areas that we are unable to. This, I think, is another selection criterion: to choose technology partners with deep partnerships across the industry.
“Every manager is different in terms of what they need from a technology perspective. We have seen 200 to 300 fund launches over the last 15 years so we can share insights on what managers have done for different strategies: how they integrated different technologies and what were the results. More managers are outsourcing compliance, for example. Rather than hire and retain individuals, they can turn to their service provider who has the subject matter expertise because of the numerous clients it has to support. This allows them to give managers the best ongoing advice on what they should be doing to meet both investor and regulatory requirements,” outlines El-Zmetr.
Meeting investors’ operational due diligence expectations requires well-developed system processes, compliance controls and as much workflow automation as possible. This helps to standardise the reporting process and convey a clear, consistent message to investors on fund performance, as well as to regulatory authorities.
El-Zmetr says that this middle- and back-office component is an important aspect of its business and relates to its data warehousing capability, portfolio analytics, portfolio intelligence and reporting capabilities.
“Everyone wants to leverage the data they have and possessing a tool that allows them to do that makes life easy for managers – they don’t have to dig through spreadsheets to conceptualise and generate their own reports, which can be very time consuming and prone to errors.
“By using our platform, their time can be better spent on the investment process and generating alpha,” explains El-Zmetr.
Large hedge funds with ample IT budgets may look for a bespoke reporting solution, or develop one in-house, but this is a luxury that few emerging managers can afford.
In recent years, technology advances have overcome this problem and gone a long way to democratise investment management, in terms of quality of technology prowess. Now, managers of all shapes and sizes can partner with Siepe and use an array of investment management solutions. These include reporting tools that bring all of their data together – including past and current portfolio positions – and visualisation tools that accurately reflect portfolio performance.
“It is important to find a service provider who is willing to grow with the fund from both a spend and complexity perspective. It comes back to the point about partnership. Are your service providers really willing to grow with you or are they giving you a cookie cutter solution that falls short of your expectations and needs?” posits El-Zmetr.
In many ways, the cloud has become the great enabler, in the sense that managers are free to dial up and dial down the amount of technology they use that best suits their business needs at any given time.
“The evolution of the public cloud has enabled funds to be much more elastic to shrink and to grow when needed, to allocate resources from a technology standpoint when necessary, to add integrations and capabilities when available, and only have to pay for it as and when they need it,” says El-Zmetr.
He adds: “We might start working with a client on portfolio accounting or portfolio reporting or data warehousing, before we work with them on the managed services side. Some clients will engage with us on both sides because they see the value of doing so. They understand the investment process, front to back, and want a true turnkey solution – where we are effectively functioning as their outsourced COO.
“It’s all about showing managers what tools are available and what are best suited to their business needs. We can’t provide a full front to back OMS/PMS, for example, so we work closely with a few key players including Eze, Enfusion, Broadridge, etc.”
A fund manager shouldn’t worry about how to fit technology together; that’s not what investors are paying them to do. Ultimately, whatever the final arrangement, Siepe helps plug it all together, depending on the manager’s preferences.
Going forward, El-Zmetr thinks COOs will need to be even more tech savvy than they are today because the level of technology being used in hedge funds will continue to grow: “They are going to be using more systems and leveraging more data. That’s why partnership is key. A COO will either need to have excellent relationships with their service providers, or they’re going to have to be able to do it all themselves.”
