Compliance requirements for hedge funds have been on a steady upward trajectory since the global financial crisis. In some cases, this has led to the breakdown of a tangible connection with portfolio managers, as the business is often too concerned with ensuring nothing is missed. Technology can help bridge this gap.
“The industry has moved towards consolidation of applications. But although these ‘mega applications’ have made many things possible, they also made tailored firm-wide compliance almost impossible,” describes John-Peter Lee, owner, of Metaframe Technology Solutions, “They were forced into it by the rising compliance needs and as a result, that flexibility is gone.”
He says the loss of visibility and a tangible connection to the portfolio managers is one of the main risks hedge fund managers are facing in this space. The compliance burden is such that firms are worried they will miss something which leads to engaging with portfolio managers being less of a priority.
DashHub, Metaframe’s main proposition, seeks to mitigate these issues and enhance operations and reporting for compliance while also improving visibility for trading and opportunities when prospecting.
“The solution we offer pulls information from one source, transforms it enriches it using other sources, and then sends it off to either a system or designated email address,” Lee says, “For hedge fund managers this supports operations by sending in day trader reports, pricing position reports, reconciliations, beginning of day risk reports, etc.”
Through DashHub, hedge fund managers have been able to automate and deliver the code-critical metrics they want to see on a daily basis. “This has been a big gain for them,” Lee observes.
Encouraging collaboration
In the fallout of the Covid pandemic, the need for solutions that support connection has become more acute. “Covid fundamentally changed the way people work. Especially in the hedge fund industry, where you now have entire teams that are virtual – from the traders to the analysts, the administrative staff people,” Lee comments, “But historically, the structure that works best is when you’re all in the same room. This is why most hedge fund offices are set up with a bullpen where it’s all open and encourages collaboration.”
However, when all staff is working remotely, those relationships can start to break down; therefore, it is critical for firms to view and share information collaboratively. Lee says: “In the past year our clients have got a lot better and a lot smarter at doing this. We have seen them thrive in going through virtual due diligence exercises with potential investors.
“They have realised the importance of having this compliance reporting in place especially as some clients got rejected in the first round of potential investments for not having this sort of infrastructure in place.”
Lee also underscores the shift caused by the pandemic in the way Metaframe builds client relationships: “Before the pandemic, a lot of what we did was operational. And although that continues to be DashHub’s main purposes, we’ve seen clients make a leap of thought to thinking it can also be used for front office trading and compliance visibility.”
For example, the past year has seen progress in integration with Excel. This means the tool can not only generate Excel documents but can also integrate with existing Excel reports. “It is something we have been making our clients aware of; we can automate a lot of what they do and assist not just in an operational capacity but also on the front office side of things,” Lee says.
Front office shift
For a technology solution to be considered for the use of the front office, Lee highlights there needs to be a switch in thought processes as well: “What is critical is that the hedge funds view us as a partner in their firm’s endeavors. Having been part of a hedge fund, our technology team is able to integrate seamlessly.
“The transition we are trying to make is to have clients think of us as part of their team. For example, if they notice their analysts are spending a lot of time pulling data and taking long to get ready for the trading day, they approach us to figure out how to automate that function.”
Automation also removes the element of human error where the process is done correctly every time. Lee comments: “We came across cases where they’ve been doing certain things manually for years and they made mistakes which they don’t necessarily catch. When DashHub runs a process, it is accurate every time and can be relied upon. Plus, it is done before the analysts even get to the office.
Quick change
Metaframe also prides itself on its agility. It’s difficult for mega applications to adapt their scenarios. Managers can put in change requests, which then are sent to the development team which can take six to eight weeks to develop if the request fits in with the application’s business model.
“We can turn requests around in less than a week, most of the time,” stresses Lee, “Some changes can also be done within a day. We have a rich graphing library that allows clients to visualise these dashboards and overviews quickly. We have a rich reporting functionality that allows us to implement basic functionality like end-of-day trade reporting, but also has scope for more complex functionality like Excel-based real-time risk reports, which will be generated at the beginning of day and can then be used throughout the day for training purposes.”
John-Peter Lee, Principal, Metaframe Technology Solutions
John-Peter Lee is an accomplished FinTech Executive with over 20 years of experience leading the technology vision necessary to position businesses to greater levels of growth and efficiency. With expertise in agile software development, FinTech systems, and process automation, John-Peter works with high-growth companies in the hedge fund industry.
