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Linedata builds on Beauchamp’s critical mass in Asia

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Beauchamp Hedge Fund Solutions is part of the French-owned solutions firm, Linedata Services.

Beauchamp Hedge Fund Solutions is part of the French-owned solutions firm, Linedata Services. Linedata, with its LongView product for the traditional buy-side market, wanted a complementary hedge fund software business and bought Beauchamp Financial Technology in December 2005.

The firm’s Hong Kong office is a good place to find out about hedge funds in Asia because as market leader, it is working in the back, middle and front offices of many hedge funds there. Beauchamp has 60 hedge fund manager clients in the region, mostly in Singapore and Hong Kong, but also in Australia, China, Japan and Taiwan. The Beauchamp suite encompasses front, middle and back office functionality, so that hedge fund managers benefit from seamless processing – from electronic trading straight through to reconciliation and reporting.

Beauchamp has been servicing hedge funds for nearly 10 years. According to Marie Christine Merkly, head of hedge fund sales for Linedata in Hong Kong, this is one of the reasons why the company is significantly ahead of the competition in servicing the hedge fund market in Asia. Beauchamp has been in Hong Kong since 2002 and now has nearly 40 staff there, providing critical mass to the Asian business.

Apart from Hong Kong, Merkly’s brief is Singapore, Australia, Japan, South Korea and even the hedge fund fledgling, Vietnam. Other countries such as the Philippines, Indonesia or Thailand just aren’t big enough yet to play for, she says. Her colleague Chapman Moore covers China as well as leading Linedata’s development of the institutional asset management software market.

‘Our dominance of the market, which we do not take for granted, means that clients are actively referring us to possible prospects,’ Merkley says. ‘Some hedge funds are trying to do a lot with too little technology, often just Excel, and they need more sophistication. Investors and regulators alike are increasingly looking for more robust operational procedures, in which technology can play a big part.’

Merkly notes that in a bid to attract investment business, Singapore has put in place a benign regulatory environment for hedge funds start-ups, and her colleague, product director Stuart Calder, argues that the choice of location between Hong Kong and Singapore is increasingly difficult.

‘Some clients have said they prefer Singapore because it is more lightly regulated, at least in the hedge fund space,’ Calder says. ‘Some also prefer the climate and overall lifestyle compared with Hong Kong. However, Hong Kong remains the dominant location for hedge funds in Asia.’

Merkly adds: ‘Singapore is a little less active than last year, partly because the investment mood has changed and partly because finding office space for hedge funds is more difficult. To an extent, some business has come back to Hong Kong. There are now much bigger, billion US dollar funds being handled here.’

Not that the Hong Kong team is complacent. ‘The US sub-prime problem reached here,’ Merkly says. ‘We are very aware that our client service has to be excellent – which is why we have such a large office here.’

Calder says: ‘Rising operational risk and compliance issues have become a burden for many hedge fund managers. They can soak up valuable time that could be spent more profitably on managing portfolios. Our systems can help to give our clients back that time, as well as help them to reassure investors and regulators that they are running a secure operation.’

According to Merkly, many of the funds in the region are classic long/short equity hedge funds, but the Beauchamp software supports all hedge strategies: event-driven, global macro, fixed income, credit and derivatives – ‘unlike much of our competition’, she says.

Calder says: ‘While hedge funds have not traditionally been known for openness about their investment strategies, they are recognising that investors, in particular institutional investors and fund of funds managers, now expect timely and accurate information about what is in the portfolio, so they can track exposure across many funds. The Beauchamp software is flexible enough to cater for a wide range of hedge fund managers, and can help them to meet those demands for transparency.

‘Timeliness is key. You can’t manage risk effectively unless you have an accurate view of your positions and their values and sensitivities to external factors. The Beauchamp software immediately reflects trades in reports.

‘The hedge fund world is moving to more frequent valuations even for complex, hard-to-value derivatives, which we have addressed both by providing internal valuation models, and by building links to a range of external valuation providers. Timely reconciliation is also instrumental in mitigating operational risk, and several prime brokers are looking to replace end-of-day files with real-time messaging, so errors can be trapped at the earliest possible stage.

‘We have an extensive research and development programme, as we have to keep up with the rapid pace of change in the alternative investments arena.’

The Linedata group is now seeing a convergence between traditional, long-only managers and hedge funds. Traditional managers have been setting up or buying hedge fund management operations, or investing in alternatives via funds of funds. They have also been investing in a wider range of asset types – not just stocks and bonds.

Moreover, some of the largest and most successful hedge funds are behaving more like institutional investment managers, running long-only or 130/30 portfolios, and taking in-house some of the services traditionally provided by their prime brokers. Beauchamp has always specialised in hedge funds, but Calder says the firm is seeing some managers also running long-only strategies on its platforms.

Linedata has a range of products that historically were sold to large asset managers and administrators, including Longview Trading System, Linedata Compliance, and the Icon and MFact fund accounting platforms. These products are currently being enhanced to improve their capabilities for hedge funds, and in the case of Longview Trading System and Linedata Compliance, are being integrated much more closely with the Beauchamp platform to provide a single solution for the converging marketplace.

Meanwhile, the outlook is upbeat for the firm’s clientele in Asia. Says Merkly: ‘Given the sub-prime and equities downturn, hedge funds in Asia are not doing badly so far in 2008, although not surprisingly there is an air of caution among hedge fund managers.

‘Going forward, we think there are plenty of opportunities in the hedge fund market in Asia. We dominate the hedge fund market here, but fully understand that we have to keep investing in our people to maintain first-class client service, and in our software.’

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