Hedge Funds Forced To Rethink Operations
Amid regulatory and economic uncertainty, hedge fund managers are in need of investment-grade, integrated operations covering front-to-back office activities.
“The goal is to enable fund managers to focus on generating alpha, and having the platform being flexible and tailor-made to their needs while not having to build it,” Alberto Corvo, managing principal for financial services at outsourcing firm eClerx, told Markets Media.
TotalHedge3, a fund administration, technology and middle office processing platform launched by eClerx in collaboration with Trinity Fund Administration and Arbor Financial Systems, is aimed at empowering fund managers to simplify investment decisions and improve operational efficiencies, while satisfying investor and regulatory needs.
The platform is essentially a “shrink-wrapped” hedge fund, providing managers with a single source for all functions needed to run a fund such as trade processing, fund administration, technology, compliance and regulatory support.
Trade processing requires front-to-back support covering trade capture, affirmations, confirmations and settlements using workflow tools and best practices to minimize operational risk.
“Managers require the capability to allow for diversification of trading strategies and quick exploitation of ideal market conditions,” said Corvo.
The demands of fund operations necessitate state-of-the-art technology and services.
“By accessing integrated HF administration, technology and operation in one step, fund managers can launch in shorter timeframes, drastically reduce fixed costs and trade substantially all asset classes, knowing that the backbone has the capabilities to process them,” said Corvo.
IT strategies now have to account for new data needs, new media, as well as the impact of legislation on data needs and use.
“Even the most sophisticated companies are recalibrating governance over IT risk to create a more holistic view rather than using a traditional siloed approach,” said Greg Bell, principal and global information protection and business resilience leader at KPMG.
“Establishing a unified vision of an organization’s information requirements amidst the cacophony of new data needs, shifting regulations and advancing technology is an immediate need, and long-term challenge.”
New reporting requirements for hedge funds, especially Form PF, aimed at assessing systemic risk under the Dodd-Frank mandate, will tax the resources of fund managers and service providers alike.
“Regulatory compliance entails a robust operational and regulatory infrastructure for both start-up and established hedge funds, as well as a proactive approach to manage audit and tax process in order to fulfill various regulatory requirements,” said Corvo.
The regulatory framework under the Dodd-Frank Act establishes the need to look at data holistically and to aggregate data from multiple sources.
Form PF requires hedge funds to consolidate information that may be spread across multiple fund administrators.
“Form PF is a huge reporting burden,” said Corvo. “There’s a lot of number crunching and a lot of data that needs to be collected, and it needs to be performed every quarter.”
Hedge funds with more than $150 million in U.S. assets under management must register with the SEC. Managers with assets between $100 million and $150 million who advise separately-managed accounts must also register.
The Pyth network is designed to bring real-world data on-chain on a sub-second timescale.
Jefferies and three fund managers will provide CLO equity capital and warehouse funding for new issues.
Pyth is built on a blockchain to handle receipt and distribution of fast-moving data.
CEO said significant loss relating to the failure of a US-based hedge fund is unacceptable.
The fund will leverage the platform to aide its AI-based strategies for the currency markets.