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Outsourcing partners can be key to keeping hedge fund businesses running during Covid-19

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Please find below comments from Truss Edge and 2912 Advisors on the outsourcing challenges and solutions facing hedge funds during the current Covid-19 lockdown. Should you wish to speak to either Truss Edge or 2912 Advisors in New York, please contact Stuart Fieldhouse using the details below.

The onset of Covid-19 has brought home to many hedge fund managers and service providers the reality of closing down an office and relocating personnel to their homes. Vanilla disaster recovery procedures, which planned for the relocation of staff en-masse to alternative facilities, were simply not prepared for something on quite this scale.

That’s the view of Truss Edge and 2912 Advisors which say that if there is one lesson that firms are taking away from the epidemic, it is that middle and back office operations need to be more agile. 

Truss Edge has, from its earliest days, been a technology business located in a number of diverse locations in Europe, Canada and the United States. The company says it is part of our operational DNA and has stood it in good stead in the current crisis, where there is no reliance on a single office.

Truss Edge says that for hedge funds and fund administrators, the challenge is going to be keeping middle and back offices running in an environment they were not designed for. Just as we are seeing industrial supply chains encountering difficulties, so financial supply chains, the movement of securities and data, is suffering some of its own logistical challenges.

Communications are also essential – with personnel away from your bricks and mortar office it can be hard to maintain the same consultative culture you might have enjoyed previously. That’s why it is important to keep talking, even over distances.

“The current crisis aside, it has long been our belief that communicating regularly with clients who were outsourcing their operations was essential,” says James Sorrentino, founder of 2912 Advisors, the boutique consulting firm headed by former members of the Perry Capital team, which offers advisory and outsourced middle to back office services.

“We maintain our scheduled “check-in” calls with our fund manager clients and discuss our agenda in full. Daily and month-end deliverables are presented as per our agreed-upon schedules. In short, our communications with the fund managers are unchanged.”

While many disaster recovery plans have centred around how to keep the front office operational, in some cases middle and back office requirements may have been neglected. This can create internal issues, like the mis-allocation of trades and unresolved trade breaks. Response times for dealing with problems like this may be getting longer.

“Truss Edge has evolved to provide dedicated operational and automation support to both hedge funds and their service providers,” says Jay Duffy, CEO of Truss Edge. “We have no dependencies, be it key personnel, customers, asset classes, product types or service providers. We specialise in remote working. This is nothing new to us.”

While it may be possible for an individual working from home to connect back to the core work environment with limited technological set up, this is not the case for an entire team or work unit. Taking that unit out of the office and getting it to work effectively from a diverse set of locations is a different challenge entirely.

This is where institutional-grade technology can deliver as it can be designed to support a team that is required to function in disparate locations, for example under the operational pressures of Covid-19.  Systems that dashboard activities and inform users of steps others have taken through automation instead of being built on physical contact are essential to supporting a disparate team.

Truss Edge aims to mitigate the operational risks faced by its clients through multiple points of contact.

“As we are not physically positioned with clients, we provide that essential remote access and support level that can supplement robust business continuity planning,” Duffy explains. “We are now providing uninterrupted operational support for our clients during this crisis.”

There is no clear picture of how Covid-19 is going to behave during the next six months: it may disappear over the summer, as many of its cousin viruses are wont to do, but it may come back again in the autumn. Governments may periodically raise and re-impose lockdowns and quarantines.

The asset management industry is facing a very unpredictable year, market gyrations aside.

This will require fund managers and service providers to think hard about how they will cope with a much more dynamic and unpredictable environment. Outsourcing some of that operational risk to experienced partners could be part of the solution.

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