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Delivering transparency to run liquid alternatives

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“Being able to wrap an alternative trading strategy into a ’40 Act fund structure is going to open up hedge funds to a far wider audience,” comments Martin Sreba (pictured), Senior Director, Global Solutions Management & Sales at Advent Software.

Registered investment advisers who have never before contemplated mutual funds are now looking over their shoulders as large traditional asset managers launch their own internal hedge fund strategies. This is producing significant convergence as both traditional and alternative managers look to tap in to the USD15trn mutual fund market.
 
Figures released by Barclays Prime Services show a 43 per cent increase in liquid alternatives year-on-year versus 13 per cent for hedge funds.
 
But whilst the growth of ’40 Act funds is not in doubt, running such a product represents a significant operational undertaking for alternative fund managers.
 
“The ability to be as real-time as possible and show data in native form to the fund manager is critical. When retail investors start moving more into liquid alternatives this will become much more important; investor transparency will be a key driver,” says Sreba.
 
That’s important if managers intend to run a regulated vehicle. ’40 Act funds must also offer daily liquidity, leverage levels cannot exceed 33 per cent of gross assets and there’s a 15 per cent cap on illiquid positions.
 
Having supported the complex trading strategies of hedge funds for over a decade, Advent Software has built its systems to provide just the kind of internal controls and processes needed to run liquid alternatives.
 
“Over the years we saw a need for better transparency and applied a module to our solution for this market – Geneva World Investor – that allows investors to be tied to their positions. This means that for any investor in our system, we can produce reports that show hypothetical exposures to the fund’s assets depending on how much capital they’ve allocated to the fund.”
 
“This is a unique concept. An increasing number of clients we are signing up are asking what kind of transparency our system can provide to their investors. This was not something that managers concerned themselves with five or six years ago. Geneva World Investor will enable them to provide the necessary transparency to their downstream clients,” confirms Sreba.
 
Geneva World Investor is part of an integrated solution that sits on top of Geneva. “It is still one Geneva product. Activating Geneva World Investor is like a switch on the system that we can turn on for the manager if and when they require it,” adds Sreba.
 
Data transparency is critical for managers running liquid alternatives. Whilst many share data with investors through their own portals, the ultimate aim is to provide a portal that gives portfolio managers all the real-time data at one end, and access to the fund data through a single portal interface at the other.
 
“We are building out portal technology with our new cloud solution, Advent Direct. Our goal is to provide a complete front to back solution that gives fund managers all the necessary transparency to successfully run ’40 Act compliant funds and become the default portal for their investors to access portfolio information.”
 
“We feel that we are in a great position to provide a solution to alternative managers looking more closely at the ’40 Act fund space,” concludes Sreba.

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