Innovation in IBOR - Ops2Tech
Viteos: Best Shadow Accounting Firm – The investment book of record (IBOR) a crucial component for a hedge fund manager, is facing a number of challenges as managers search for alpha. Shankar Iyer (pictured), chief solutions officer at Viteos, explains how innovation is helping hedge funds alleviate some of these pressures.
“We are bringing expertise and tools that eventually drive towards providing better insights. For example, we carried out a pilot for a hedge fund where we took all of their trades for a past period and analysed the cost of placing them through the most optimally priced broker versus the ones they were using out of habit or relationship,” Iyer says.
He adds the firm was able to show how this fund could have saved a few million dollars if they had leveraged technology in making the determination of where to place their trades. This shows efficiency through better processes and technology is not just a cost advantage but in many situations can result in quicker processing and turnaround times, leading to better decision-making.
Iyer continues: “A concept of what Viteos has been practising over the years is what we call Ops2Tech; where we rapidly turn operations into tech for each applicable process as our technology works to deliver the solutions requested by decision makers—tech that we own, manage, and continuously improve. The real value proposition is the continuous improvement of operations by employing automation solutions each day that improve STP.”
He notes how other types outsourcing providers have grown in the industry, separate from traditional fund administration businesses. Their business model is based on being a partner to the fund operations and building that infrastructure cooperatively to produce the IBOR. The providers operate like an extension of the hedge fund’s back-office in addressing this need. Although some fund administrators have taken the position of being an IBOR outsourcer and offering their own technology, they are not always the first choice for managers.
Talking about the key benefits Viteos’ clients enjoy from the firm’s efforts in upholding best practice, Iyer comments: “Managers are searching for asset classes and products that can meet the performance demanded by investors. They have known for quite some time this is not found in standard, listed products such as equities. Instead they need to trade instruments like OTC products or illiquid alternatives which are not settled in a straight-through process.”
“These products put pressure on the operations team that needs to track cash flows, carry out individual pricing, or building risk management modelling. This has led to demands for better internal systems due to complexity. As a result, there is also significant pressure on what the investment book of records (IBOR) looks like, which has in turn made demands of the middle and back office functions from both a people and technology perspective.”
Looking ahead at challenges the industry faces, Iyer concludes: “Firms have looked to introduce work flow automation processes, technologies like machine learning and other tools to the IBOR process. Many of these processes are repetitive and could use some level of robotics process automation (RPA), which really leads to even better straight-through processing (STP).
“While the case for distributed ledger technology (DLT) can be made in IBOR creation and management, it is still in the preliminary phase. Broadly speaking, there is much innovation happening that helps create that efficiency.”