Hedge Funds Require Position-Based Reporting

Terry Flanagan

Hedge funds are being driven by regulations to view positions, transactions, and security master data in real time, creating a systems and logistical hurdle, according to Marshall Saffer, chief operating officer at MIK Fund Solutions.

“Whether it be Form PF or AIFMD, it’s all position-based reporting,” Saffer told Markets Media. “You couldn’t satisfy AIFMD or Form PF by using accounting as an input. There has to be a whole different view set of data.”

MIK Fund Solutions, which has about 60 hedge fund clients, integrates data from front office (portfolio management, trading and risk) through back office (trade capture, position and performance reconciliation) legal, compliance, and investor relations.

“We get behind the scenes to develop a new solution around a business problem or introduce solutions to problems they don’t know they have yet,” Saffer said. “We started the company back in 2007 and what we’re really about is designing and helping hedge fund managers with their reporting analysis and data infrastructure.”

The task is essentially to build a flow diagram, or decision tree, that captures the inputs portfolio managers use to make trading decisions. “Every PM has a certain decision tree,” said Saffer. “You’re going to buy IBM. I’m going to buy IBM. I can guarantee you that when we both buy IBM there will be a different reason why we got to that decision process. What my job is to do is to understand and interpret your decision tree and being able to reflect that in the processes, data, and information to help you manage that investment thesis and process for the buy or sell decision.”

The process is four-dimensional. The first three dimensions are security master data, market data, and position data. The fourth dimension is time.

“The fourth dimension involves taking those three dimensions and providing a time element,” said Saffer. “Interact it day over day over day. What did the world look like today? What did it look like yesterday? What did it look like the day before? “You’ve got this concept of warehousing your time stamping, the state of the world at that moment.”

In MIK’s case, all the work is done within a data warehouse, or “position management system.”

“Once you get that core information in place, inside the warehouse is where we’re doing performance measurement, attribution, exposure calculations,” said Saffer. “All that is done as part of the position management system.”

Featured image via iStock

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