Institutional Investor's Alpha Magazine - October 2008 - (Page 64)

HEDGE FUND ADMINISTRATION ● Funds are seeking out service providers with strong pricing, valuation and reporting capabilities (continued from page 1) continues to evolve. Today, funds are seeking out service providers with strong pricing, valuation and reporting capabilities to satisfy investors’ desire for greater clarity, transparency and governance of their assets. “Over the past ﬁve years, there has been a clear movement from high-net-worth individuals to institutional investors,” notes Darren Stainrod, a managing director at UBS Global Asset Management and head of fund services for the Americas in Grand Cayman. “As a result, more demands for reporting and accountability are being placed on hedge fund managers and administrators.” that affects a fund’s performance. “Counterparty risk is another concern for advisers, who are asking, ‘What assets do I need to keep with a prime broker, and can I put a portion of my assets in a custody safekeeping account to reduce risk?’” says Wallace. In striving to answer those types of questions and serve fund managers and advisers effectively, administrators need to understand a client’s “pain points,” according to Cassidy. “You have to be very focused on the client and understand your roles and responsibilities, so you can offer the right package of support services.” DELIVERING ESSENTIAL SERVICES When hedge funds turn to service providers, they are primarily seeking effective back-ofﬁce support, including recordkeeping, trade conﬁrmation, trade settlement and regulatory compliance. “Basic security servicing is more valued today than ever before because of today’s difﬁcult markets,” says Wallace. “We can help fund managers work through tough situations.” An effective administrator provides both managers and investors with the assurance that a fund’s operations and back ofﬁce are clean and that reporting is reliable, Keunen adds. “Beyond that, there are many valuable add-on services, not the least of which is a consultative role based on the experience gained working with so many diverse hedge funds.” In turn, managers are taking a greater interest in their service provider’s operations, making sure the administrator’s systems and processes meet all regulatory and compliance requirements. The goal is to avoid an unpleasant surprise SUPPORTING COMPLEX STRATEGIES In recent years, hedge funds have continually explored new strategies designed to generate alpha, or excess returns, for investors. Those include emerging markets, event-driven, multistrategy and 130-30 funds (130 percent long and 30 percent short). At the same time, service providers are being challenged to process complex new derivatives and other ﬁnancial instruments developed to help managers achieve their goals. “A key trend for administrators is the ability to support complex structures,” says Jeff Potter, vice president of corporate and institutional services in the global product and strategy group at Northern Trust in Chicago. As over-the-counter derivatives become more mainstream, fund managers are increasingly using them to continue chasing alpha, he adds. New strategies are also being initiated to take advantage of current market conditions. “We are seeing and expect to see more launches of hedge funds that invest in distressed credit and securities,” says Robert Caporale, managing EVOLUTION OF HEDGE FUND ADMINISTRATION 1990-2000 (Embryonic phase) Market size HF Market Characteristics $4 TN HFA Services • Back ofﬁce • Line model • Mostly manual processes • Limited corporate controls • Small (< $2 BN) HFA Operations Typical HFA size Source: Celent, Trends in Hedge Fund Administration 2008 4 • Alpha Sponsored Report • October 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2008

Institutional Investor's Alpha Magazine - October 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Process of Evolution The Good Guys: Israel's Champion Interview: Fast Lessons for Hard Times Cover Story: Industry Under Siege The New Hedge Fund Economics Good-Bye, Easy Money Caging the Shorts Strategies: Bottom Fishing Profile: Cult of Personalities Research Center: Alpha Awards: Eye of the Storm Alpha Bytes: Funneling the Chatter Unhedged: Commentary: Attention, Hedge Fund Shoppers

Institutional Investor's Alpha Magazine - October 2008

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