Hedge Funds Look to Middle Office for Efficiency Gains
Amid one of the worst economic climates in decades, hedge funds are implementing technology to improve efficiency and automation of middle office operations, including workflow for corporate actions, stock loans and swap financing.
“For hedge funds, the job of the middle office is making sure that all investments and transactions are correctly and accurately recorded, and maintaining a book of open positions,” said Ed Gouldstone, head of hedge fund product strategy at Linedata, a provider of software services. “If I’m running a portfolio, I need to be alerted to a corporate action, such as a dividend, stock split or merger in a timely fashion.”
Beauchamp, Linedata’s flagship hedge fund portfolio management offering, has been upgraded with data visualization tools to enable portfolio managers to immediately view corporate actions.
This includes an interactive calendar for managing corporate actions, and a single screen which unifies stock loans.
“The objective is to deliver middle office functionality in order to automate as many processes as possible,” Gouldstone said. “It’s about making information on corporate actions easily available through interactive dashboards which incorporate feeds from multiple data providers.”
Designed specifically to meet the needs of the alternative investment community, Beauchamp supports multi-currency, multi-asset class and multi-strategy investing.
Event-driven funds that specialize in trading around merger and acquisitions need to attribute profit and loss (P&L) to a particular trade idea or strategy. Event-driven funds have less active trading strategies but instead are highly focused on trade ideas and use Beauchamp to calculate P&L for synthetic instruments, such as contracts for difference.
“Many of our hedge fund clients in Europe, as well as in the U.S., are using synthetic transactions to gain alpha,” said Gouldstone. “When you execute such transactions through a prime broker, the costs can vary depending on how risky the prime broker views the transaction.”
Jeremy Skaling, head of product management at technology provider Eagle Investment Systems, said: “This stress is forcing the industry to search for alternatives to age old processes and procedures and enhanced solutions for managing the increasing volume of data to meet regulatory demands.”
The new version of Beauchamp improves automation of tracking position-level financing costs, so that P&L can be attributed down to the individual investment level.
“Many of our hedge fund clients in Europe, as well as in the US., are using synthetic transactions to gain alpha,” said Gouldstone. “When you execute such transactions through a prime broker, the costs can vary depending on how risky the prime broker views the transaction. We’ve implemented a way to track those costs in a granular manner.”
Asset managers are seeking to boost middle office functionality in the light of increased regulatory demands, increased numbers of counterparties, custodial relationships and investor tracking.
“When faced with these increased demands, already stretched operations with ageing systems can struggle to meet the challenge or look to solutions keeping pace,” said Skaling at Eagle Investment Systems.
Average break-even AUM is just $86 million, AIMA report says.