Institutional Investor's Alpha Magazine - October 2007 - (Page 66)

HedgeFund Administration frequent reporting to enhance the decision-making process. “We’re seeing a real push for more frequent reporting, including daily deliverables such as reconciliations, balances and P&Ls,” says Donahoe. Buckley notes that fund managers also want more powerful and flexible analytic tools to make sense of the increased flow of data.“There is also a drive to provide more risk management information in formats that can interface with fund managers’ internal solutions,” he says. Technology and People To handle the higher transaction volume and intricacies of today’s hedge fund strategies, hedge fund administrators rely on a technology platform with heavy-duty number-crunching capabilities. But they also need professionals who understand how to use that technology, along with an in-depth understanding of accounting practices, pricing methodologies and risk management models. “Technology is the cost of admission in this business,” says Lancaster, adding that the key attributes required of a fund administration technology platform are scalability, functionality, speed and cost effectiveness. “Balancing these attributes has been a challenge for some providers,” he says. “Assuring that staff is trained to use the various modules of the platform properly is also critical – otherwise, you and your clients are not getting what you’ve paid and planned for.” And in today’s market, Lancaster adds, technology is not usually the primary factor that determines the Dylan Curley quality of a provider’s service or UBS whether an administrator has the ability to take on new clients.The quality and experience level of the staff is the critical issue, he says, adding that fund administrators that want to keep growing must create an environment that fosters the sourcing and retention of experienced staff. Curley agrees with the critical importance of effective staffing. “Staff retention statistics are crucial within the administration industry, and high staff turnover can lead to client dissatisfaction,” he says. “Administrators must also continue to look for cost-effective service locations that are insulated from the fierce competition for qualified hedge fund accountants.” Still, there’s no denying the importance of technology, and fund managers should feel comfortable with a provider’s platform and capabilities. For instance, administrators may need to update and prioritize technology applications that can improve straight-through processing 4 • Alpha Sponsored Report • October 2007 of exotic instruments and reconciliation of daily activity. Using sophisticated modeling applications, administrators are able to look at a portfolio and run “stress tests” for different scenarios, such as interest-rate changes or other factors, says Enos.“In this way, the provider is helping the manager make better decisions, as well as monitoring the Gary Enos strategy and providing tools to help State Street explain actual performance.” Most importantly, Buckley says, “A service provider needs to be able to express any fund manager’s investment thesis in a high-volume way without the fear of exacerbating operational risk.” Delivering Added Value Today, there are many ways for global, regional and niche service providers to deliver added value to their clients. One of the keys is being able to offer the investment manager flexibility in the service model, according to Lancaster. “That includes where and how the core elements of the service are performed: investment accounting, fund accounting and data management,” he says.“A customized clientoriented model should allow managers to choose in which office each of these components is provided in order to take advantage of the shape of the planet and make the service model as efficient as possible.” And hedge fund administrators can provide value-added services that go beyond a pure back-office service model, adds Curley.“The challenge is for administrators to identify what additional services can be provided today with limited build-out and a strategic plan to address the expansion of the service offering based on client and market demand,” he says. One example is the multiprime brokerage environment, Curley adds. As counterparties increase, the administrator will continue to be asked to provide more frequent and extensive reporting in the areas of trade and position reconciliation, as well as portfolio attribution and other analytics. Mark Lancaster “The ability to provide added Fortis Prime Fund Solutions value beyond a pure back-office offering is where you will see administrators beginning to differentiate themselves,” says Curley.“The challenge is to create a scalable platform that allows you to provide a flexible solution to meet client and industry demands while remaining profitable and protecting capacity.” ■

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2007

Institutional Investor's Alpha Magazine - October 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Applied Knowledge The Good Guys: Autism Advocate Interview: Nerves of Steel Cover Story: Ivy League Education Alpha Awards: Top Service Providers: Trying Times Strategies: Passage to India Profile: The Oracle of Irvine Alpha Bytes: Futurama Research Center: Funds of Funds 50 Unhedged: Commentary: Crisis? What Crisis?

Institutional Investor's Alpha Magazine - October 2007

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