Institutional Investor's Alpha Magazine - October 2008 - (Page 68)

HEDGE FUND ADMINISTRATION ● Automation is essential to the smooth ﬂow of the transactional, compliance, reporting and informational processes funds self-administer. “Also, some jurisdictions in Europe insist on having an administrator from the same domicile, while in the US, there is usually the more open and ﬂexible architecture of Delaware or Cayman-domiciled funds,” he notes. Looking ahead to 2009, Keunen points out that the hedge fund sector is moving into a new stage because of market uncertainties. “We are looking at a potentially signiﬁcant asset correction at the end of this year, when many investors will revisit their allocations,” he says. “This in itself presents opportunities for administrators to consolidate their capabilities.” a new issue, we will work with the fund manager and broker to come up with a manual price.” DIANE CASSIDY PNC GLOBAL INVESTMENT SERVICING “Ultimately, we are only as good as our counterparty’s ability to deliver information.” ADDRESSING THE VALUATION ISSUE In the world’s uncertain market climate, the issue of how to value complex securities is of critical importance to investors, regulators, funds and service providers. “The valuation question has clearly come to the fore during this period of market turbulence and is the key component of the broader issue of transparency,” says Wallace. “With complex, hard-to-price instruments, valuation processes require multiple sources, market expertise and independence.” Administrators are placing a renewed emphasis on pricing support, seeking to understand the process and asking for multiple, independent valuations for complex instruments. Fund valuation committees may also play an important role in determining valuations of distressed and illiquid securities. “Managers are looking at where you can bring in vendor While administrators typically bring in independent experts for the valuation process, Cassidy believes it’s vital for providers to understand the nuances of how the ﬁnancial instruments trade and what the cash ﬂow implications are for the fund. That knowledge allows administrators to offer strategic advice and recommendations to their clients. OVERCOMING BOTTLENECKS Hedge fund administrators agree that automation is essential to the smooth ﬂow of the transactional, compliance, reporting and informational processes. “You want to drive out manual processes and automate as much as possible,” says Wallace. “That can take time when dealing with new securities and investment strategies. It’s in the industry’s best interest to automate processes and adopt standards to ensure the proper communication of investment transactions.” But automation is not always an easy objective when dealing with highly complex instruments and a wide range of technology platforms in a global environment. Cassidy notes that industry players are at widely different points when it comes to technology applications. “Ultimately, we are only as good as our counterparty’s ability to deliver information,” she says. “If the counterparty has fragmented systems – one to transmit equities, another for foreign exchange and a third for derivatives – you’ll get that information in three different feeds.” On a global level, both SWIFT and the Depository Trust & Clearing Corporation (DTCC) are taking steps to eliminate troublesome manual bottlenecks. SWIFT is working with several major prime brokers to develop and operate a centralized presettlement matching system to reduce the cost and risk of processing equity and ﬁxed-income trades originated by hedge funds globally. By enabling trade matching on the trading date or the BOB WALLACE CITIGROUP SECURITIES AND FUND SERVICES “ The valuation question has clearly come to the fore during this period of market turbulence.” support related to pricing,” Potter says. “We have a single-asset pricing service that covers hedge fund administration, and our own investment management, custody and outsourcing businesses, allowing us to reach out and pull in more vendor feeds than a smaller ﬁrm could do.” An administrator that is familiar with a client’s assets can go through a price-scrubbing exercise and present the results to the fund, adds Potter. “If the instruments are thinly traded, or if it’s 8 • 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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