Alignment Seen Between Traditional and Alternative Buy-Side Strategies
The lines between institutional asset managers and alternative managers are becoming increasingly blurred due to investment strategies, priorities and goals becoming aligned.
“The relocation of assets to either alternative or traditional strategies puts greater pressure on funds to perform,” said Doug Morgan, president of trading technology firm SunGard’s institutional asset management business.
“Therefore, fund managers are looking to technology solutions that help reduce platform complexity, increase risk management and maintain compliance to assist in the generation of alpha.”
The convergence between traditional asset management and alternative investing is evidenced by “the degree to which hedge funds are becoming more like traditional managers in terms of building more robust business continuity plans, and automating processes to support due diligence efforts”, said Morgan.
One of the upshots is the need for technology platforms that can scale, which in turn is driving SunGard to invest in cloud-based technology.
“The pressures on asset managers today, whether traditional asset managers or hedge funds, are myriad,” Morgan said. “Those pressures are forcing cost reduction programs as well as a rethinking of the business model, and an urgency in seeking above-market investment performance.”
SunGard is investing both organically and through acquisitions, such as its acquisition in 2011 of ValueLink Information Services, a supplier of validated financial data solutions.
The acquisition has extended SunGard’s Asset Arena investment management product suite to include robust validation of security pricing and corporate actions data in support of fund valuation and operational reporting processes.
Using a managed data service model, ValueLink collects and consolidates pricing and corporate actions data from numerous sources, and performs six levels of quality checking, including inter-vendor and client-specific price analyses.
“It’s an area of pain that we see in the industry, and ValueLink is a good example of how we identify where we can add value to the core processes that our customers are managing,” Morgan said.
Another pain point is regulatory compliance.
“A common theme across regulatory directives globally is transparency,” said Steve Engdahl, senior vice-president of product strategy at GoldenSource, a software provider. “From a data perspective, this involves showing the provenance of key data used in reporting, valuation and decision-making. This is causing firms to focus on the process by which they source data, validate it and distribute it within their organization.”
The Foreign Account Tax Compliance Act (Fatca), a U.S. law which aims at improving tax compliance involving foreign financial assets and offshore accounts, is expected to radically alter how asset managers conduct business on a global scale. Financial institutions must take immediate steps to prepare for this legislation or risk stiff fines.
“Not only does Fatca touch almost every asset management firm, but its changes will reverberate throughout all areas of a financial institution from compliance departments to IT to operations,” said Morgan at SunGard.
In spite of the importance of compliance—and the heavy fines for non-compliance— financial institutions have been slow to ramp up for Fatca.
To meet the new standards for regulatory compliance, asset managers need to put a best practice strategy in place. This includes establishing an online tax book with the flexibility to prepare accounting data for tax assessments in numerous markets, and a cloud infrastructure to quickly and efficiently implement tax rules and other regulatory requirements.
“The heightened due diligence and process changes required to meet the legislation’s complex documentation, withholding and reporting requirements are overwhelming,” said Morgan. “While the mechanics and technical details of Fatca are still unfolding, buy-side firms should start by assessing their existing processes, systems and operations and take steps now to identify gaps and remediate for compliance.”
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