Hedge Funds Aim Technology at Regulator, Investor Demands
June 22, 2009
Several hedge funds and their administrators are adopting enhanced systems aimed at fulfilling expected compliance requirements for more transparency and meeting heightened demands from investors to communicate portfolio information quicker and with more granular detail.
Much of the work involves porting standard portfolio processes to weekly, daily or even real-time schedules from what's typically been given lengthier, monthly or quarter-end treatment. The services reach beyond rote calculation of a fund's Net Asset Value, or "NAV," the traditional domain of hedge fund administrators.
The idea is to allow managers quicker screen-based views into their own trading and money management processes. In turn, the funds can provide more data more quickly to investors or regulators if it's deemed a competitive differentiator, or required of them. The moves come prior to new rulemaking, which yet-to-be finalized legislation will need to guide.
Using the financial information exchange (FIX) protocol as a framework, software firm Nirvana Solutions acts as the real-time front-end for the entire reporting infrastructure of Concept Capital's fund administration arm, which uses Geneva, a portfolio accounting system from Advent, a top accounting engine provider to hedge fund administrators. FIX front-ends enable updates as trades and changes in holdings and risk occur. The end result can be turbo-charging a legacy portfolio accounting system.
Nirvana says funds or fund administrators can bolt the module onto their existing portfolio accounting systems to make real-time the process of calculating profit and loss, value-at-risk (VAR), exposure and other measures, across multiple prime brokers or managed accounts, while still feeding reports from legacy systems. Nirvana competes in this space with Paladyne Systems and Infonic AG.
GlobeOp, the fund administrator for Lighthouse Investment Partners, provides monthly NAVs to Lighthouse clients. That's not unusual; many other fund administrators do too. But the Florida-based fund of hedge funds uses position-level data independently filtered by GlobeOp to supply "tighter daily estimates of performance for [its] managed account dedicated funds," said Douglas Bookbinder, director of investor relations for Lighthouse, which has over $5 billion in assets under management. GlobeOp's platform is powered by Advent's Geneva and Thomson-Reuter's Kondor trade capture system.
Advent itself expects to soon launch a system that will do what Nirvana's platform does, including real-time front-end trade capture, P&L and risk analysis. The vendor is augmenting the data that Geneva captures to provide a "dashboard" view of exposure and risk. A real-time trade blotter is being fit on top of Geneva for the purpose.
"To capture and consolidate all that data from multiple front office systems and see it in real-time--or as real-time as the firm wants to provide it--so cross-exposures are understood; that's where I think we can add value," says Chris Momsen, a senior VP and general manager of global accounts at Advent.
Despite talk of position-level transparency, few offering traditional hedge fund investing enable such reporting, even though many administrators can offer it. That's because funds fear it will lead to trade leakage, wrecking what they view as novel strategies.
Yet Annabel Marisca, sales and marketing director for Spectrum Global Fund Administration, says some of her firm's hedge fund clients are providing reporting on pro-rata shares of specific positions to their end investors now, both in managed accounts and traditional hedge fund structures. More common are funds offering options for individual managed accounts, which give investors complete views into their positions and holdings, along with traditional structures.
