Hedgeweek Interviews
Big data accelerates the rush for the cloud
There is one giant reason why asset managers have been accelerating their shift into the cloud in recent years: big data. The sheer scale of the data sets fund managers now use every day to shape their investment decisions is so large, that cloud-based data management and analytics solutions have become the most obvious choice.
John Kain (pictured), head of business and market development for banking and capital markets at Amazon Web Services (AWS) Financial Services, understands the technology needs of the industry better than almost anyone.
Since the industry first grasped the opportunity offered by cloud technology of virtually unlimited, scalable storage and compute that is available on demand, fund managers have been embracing cloud-based solutions in growing numbers.
“The primary trend driving adoption of cloud has been the increasing use of data, particularly for investment modelling and analytics,” says Kain, a Wall Street veteran who formerly worked for JP Morgan.
“Not only have we seen the rapid growth in the volume of traditional financial data, whether it’s pricing or news, but also the availability and use of alternative datasets within the investment process.”
In the four years since he joined AWS, Kain says there has been a marked increase in both the volumes of data being placed in the cloud but also the sophistication of the cloud-based tools being applied by fund managers.
Machine learning
The rapid advancement of cloud technology means highly specialised services that were once the preserve of a handful of industry giants, with deep enough pockets to build their own AI and machine learning-based tools, are now being deployed by managers across the board.
“When I first joined AWS, we were already seeing the more quant-oriented funds taking advantage of the compute capacity of cloud to do backtesting and research against the various trading models that they were building,” he says.
“So, whenever their researchers had an interesting thesis that they wanted to model, they could immediately get the capacity to go do that – and they could do it at scale. And since with many of these financial models, the more compute you throw at it, the faster it goes, they could actually get their investment research back more quickly.”
Attractive economics
Adding to the allure of a cloud-based solution is the lower cost. The extreme flexibility of the technology allows fund managers to access extreme computing power based on huge data sets as and when they need it – a far preferable system to the old days when fund managers stored most of their data on their own servers.
“It doesn’t matter whether you’re running 1000 servers for an hour, or one server for 1000 hours, the economics are the same in the cloud,” says Kain.
“More importantly, they’re able to take advantage of some of the unused capacity. We have special pricing models to make that incredibly cost effective.”
Kain says that this approach, which was pioneered by the biggest quant funds, is now being adopted across the industry.
“Many of the large quantitative firms have been running their research in the cloud for a while. What that’s done is create enough of a magnet for the industry that you’re increasingly seeing the availability of both traditional and alternative data sets within the cloud, for asset managers to leverage.”
That means that instead of having to build ingest pipelines for multiple vendors, and figure out how to pull data into their infrastructure, these data sets are now easily available within the cloud environment.
The fact that so much data is now available on the cloud is allowing asset managers to take the obvious next step – automating more of the processes involved in running a fund to further streamline their operations.
Research environments
To effectively work with this growing volume of data, analysts need access to a secure and managed research environment which is connected to their data, and provides self-service access to the compute necessary to quickly perform their data sampling, preparation, and analytics.
AWS recently announced FinSpace, a data management and analytics service that helps asset managers setup a research environment for their analysts so they can store, catalogue, prepare, and analyse financial industry data at scale in minutes.
Kain said, “using FinSpace customers can reduce the time it takes for analysts to find, prepare, and analyse data from months to minutes.”
Natural language processing
Kain also offers the example of natural language processing tools which use machine learning to pick out themes or trends which can be incorporated into investment decisions.
The reduced costs and the ease with which asset managers can now access them are opening up a host of new opportunities formerly only available to the world’s very biggest firms.
He said these tools were, for example, giving portfolio managers “the ability to move from using standard growth measures for Chinese GDP, to instead look at things like satellite imagery, counting the number of ships entering and leaving a port, to website searches for holidays in Hong Kong to gauge consumer sentiment – and to find ways to get that data into the investment process.”
He continues: “In the past, you would have traditionally had to have your own machine learning capability as a firm and a dedicated team of data scientists to understand how to build that out.”
These days, such advanced tools are increasingly available off the shelf from cloud providers including AWS, the world’s biggest cloud services provider owned by Amazon.
For example, AWS offers SageMaker, which allows firms to analyse data sets using advanced machine learning techniques but without the need to develop bespoke technology.
Last year, AWS launched a service called Comprehend Events, which serves as a natural language processing service to extract details around real-world events from unstructured text.
“It can go through a news article to detect an acquisition; it can identify who the acquirer was as well as other parties mentioned in the story and pull that out in an automated fashion. In the past, that would have been a major investment for any firm to be able to get those things.
So the ability to get that kind of insight from unstructured data has gotten much easier.”
High frequency holdouts
It’s true that a handful of niche areas in the fund management industry – such as high-frequency trading – are resistant to move everything into the cloud.
That’s because their strategy hinges on keeping the computers that make their trading decisions as close to the execution venue as legally possible – a critical capability for reducing latency and allowing them to execute trades before the competition.
Kain admits that it’s not easy to see an obvious alternative for these kinds of players that would work purely in the cloud.
“I think that’s an obstacle for the near future. When you’re measuring nanoseconds, it’s challenging to do that in a dynamic, on-demand environment.”
Nevertheless, this remains a niche area and more broadly, there is little doubt that asset managers are increasingly turning to cloud-based solutions.
John Kain, Head of Banking & Capital Markets, AWS Financial Services
John Kain leads Worldwide Business & Market Development for Banking and Capital Markets at Amazon Web Services (AWS). He works with customers to help them transform their existing businesses and bring new, innovative solutions to market by leveraging AWS services. John has more than 20 years of experience developing solutions for financial institutions. Prior to joining AWS, he led key programmes for JP Morgan, Nasdaq, and two venture-backed financial technology companies.
Software selection is key for asset managers
For asset managers, selecting the right fund accounting and reporting platform is a crucial step. Get it right, and everyone – from portfolio managers to back-office staff and investors – can benefit from a seamless experience streamlining many of the most important activities involved in successfully managing a fund.
Get it wrong, and executives can find themselves in a whole world of pain. Problematic technology can delay reporting, throw up compliance problems and force fund managers to embrace time-consuming manual workarounds. Most importantly, it can damage their brand by frustrating investors who may struggle to access investment information they need.
That’s why making the right decision about a technology platform and administrator to use is so important. “Firms that are lured in by a low upfront cost or well-known brand may live to regret it in the longer term,” says Jake Zornes (pictured), Managing Director at UMB Fund Services, a leading administrator in the space. That’s because the wrong decision can be hard to unwind and expensive to rectify. “Asset managers really need to dig in to determine if the technology that they’re selecting will meet their needs over the long term,” he says.
Getting it right first time
So, what are the key considerations asset managers need to be thinking about? One simple, but vital point is the need for compatible systems that can talk to each other. That’s especially true for fund managers running multiple funds with different investment strategies and supporting technologies. “If you’re using multiple systems, you may have difficulty producing consistent reporting for your investors,” says Zornes.
Another consideration is to ensure you can integrate your system effectively into external third-party systems. Zornes notes: “As you use different brokerages to help in your fundraising efforts, they all want information from the fund administrator to flow seamlessly to produce reporting on their platforms.”
Asset managers should always be conscious of the need for a properly scalable solution that can be easily expanded if they launch a new fund or expand an existing one. With decades of experience in the sector, UMB provides administration, accounting and investor servicing support to over 1,700 funds spread across hedge funds, private equity, and registered investment products.
Costs of a poor choice
Inadequate or poorly designed technology can quickly spiral from a minor irritation into a serious business problem. For example, delayed reporting for a fund caused by an incorrectly configured system can quickly impact tax reporting to the IRS or declarations to the SEC or other regulators. “Whatever the case may be, you have got to be on time with reporting,” says Zornes.
When things go wrong, funds may be forced to switch to a new administrator and technology platform – a process that is time consuming, expensive and fraught with technical complications. “It can be a challenging process, because of all of the information that resides with your administrator, all of the data, your journal entries, your investor information,” says Zornes. “Conversion costs are typically high. It’s not a simple turn it off and turn it on for somebody else. There’s a lot of information, data, and staff experience that has to migrate to your new administrator.”
Protecting your brand
Zornes says the worst-case scenario is when a fund ends up irritating its own investors and hurting its reputation. “You don’t want your investors to have a poor experience with you or your administrator because they aren’t getting the reporting or transparency they need. When your brand starts to deteriorate with your investors, you may have a more difficult challenge raising capital for future investment products.” Zornes says there is a clear trend in the industry for greater transparency – which can best be delivered via cloud-based technology.
Today, clients who invest millions – or billions – of dollars expect to be in the driver’s seat when it comes to reporting. They demand the ability to perform robust analyses and closely monitor certain aspects of their investments. They need the tools and technology to support these kinds of on-going assessments. UMB’s technology platform was built for flexibility. Customisation is at the core of what UMB does for its clients and their investors.
UMB offers a proprietary accounting product that serves as a single system which incorporates an investor portal, a customer relationship management platform, a general ledger system, as well as investment performance tracking, investor allocations and fee reporting. Zornes notes: “UMB has developed a proprietary technology platform called AltPro that offers all of these capabilities. What makes AltPro different from other systems is the seamless integration of these functions delivered through a single tool.”
Jake Zornes, Managing Director, Alternative Investments, UMB Fund Services
Jake Zornes is a managing director in UMB Fund Services’ Alternative Investments office in Ogden, Utah. He manages a team responsible for product development for the firm’s proprietary software, AltPro®. In addition, he assists with business development activities, including product demonstrations for prospective clients. Jake has worked in the fund industry since 2007, including more than eight years with UMB. He holds a finance degree and an MBA, and is a certified public accountant.
Hedge funds face strict new rules – are you prepared?
Asset managers face a major change in their margin requirements next year as part of UMR, but many firms have not yet grasped the implications for their tech stack, says Thomas Griffiths (pictured) of Cassini Systems.
In the world of high finance, 13 years feels like an eternity. But the latter phases of strict rules, which have been in the works that long, are poised to have a sweeping impact on the industry, when they are introduced this autumn and next autumn, in their last two phases.
The Uncleared Margin Rules (UMR), which will force hundreds of asset managers to hold bigger margin requirements for non-centrally cleared derivatives, were first proposed by international regulators in the wake of the 2008-9 financial crisis. Even so, Thomas Griffiths, Head of Product at software firm Cassini Systems, believes many affected firms have still not yet fully grasped the implications – or what it will mean for their technology stack.
While the early phases of UMR, which were introduced from 2016, initially impacted the sell-side, the extension of the rules to smaller asset managers from September 2021 and September 2022, in so-called Phases 5 and 6 of the UMR process, will affect an estimated 1,200 firms globally and represents a dramatic escalation of scope and reach.
Complex regulatory burden
What many firms don’t realise is the complex new regulatory burden that UMR will require – which in turn means embedding new technology and software to meet the rules.
“Up until now, only a handful of very large hedge funds were subject to UMR,” says Griffiths, a former ABN Amro banker who has worked in the sector for 20 years.
“With Phase 5 and 6, smaller hedge funds who don’t necessarily have the internal infrastructure to handle the additional regulation-related burden will need to look at outsourced technology,” he says.
The new rules, whose introduction was delayed for a year because of the pandemic, could hardly have come at a more difficult time for hedge fund managers.
“A lot of hedge funds’ returns over the past few years have been lower than expected due to volatile markets,” he says. “They have had to fight very hard to outperform passive investments that are available to investors through ETFs in particular. As a result, hedge funds have been much more focused on costs than previously. They can’t afford for any cost drag on their portfolio performance.”
That means asset managers are under enormous pressure to find ways to meet the new requirements in a cost-effective way.
“That focus on cost within the hedge fund world is something that we see much more than 5 or 10 years ago, when returns were a bit easier to come by,” he says.
Outsourced solutions
Cassini, whose clients include BlackRock and many other big asset managers, offers an outsourced solution to help hedge fund managers comply with the new rules, which cover the margin requirements for non-centrally cleared derivatives including fixed income, equities, credit and commodities derivative trades.
“Cassini offers margin analytics that provide transparency on the types of margin the buy side are being charged, either from their prime brokers under UMR, or from clearing brokers as well,” he says.
“With these margin calculations, clients are able to see the cost of margin before they trade. As a trader, I can say: ‘What would be the implications of executing this trade in terms of my margin requirements’. We give them a real time ability to see what their post-trade costs are going to be.”
Griffiths says UMR is fuelling demand for increasingly sophisticated tools which portfolio managers use to optimise portfolios and allow them analyse them in new ways.
“The move into UMR has made people look at their portfolios in a different way,” he says. “They know they have now got large margin requirements when they didn’t before. And because of UMR they’re going to have to perform some optimisation analytics to make sure that they keep their costs low.”
He continues: “We have optimisation algorithms that use machine learning. They will take a client portfolio, and propose a set of trade moves to optimise the cost associated with those positions. Maybe you move 10 trades from one counterparty to another. Maybe you moved 1000 trades from one counterparty to another. If you did that, this would reduce your costs by this amount.”
Unprepared firms could be in for a shock
Griffiths says that many of the Phase 6 firms are not sufficiently well advanced in their preparations for UMR.
Hedge funds that have not yet prepared for the new rules need to act fast. If they fail to comply in time, they could be in for a nasty shock.
“They could get to September 1 next year and try to do a trade and their counterparty says: ‘No, we cannot do that’.”
Either way, the new regulatory burden imposed by UMR is not the only new trend which Griffiths observes in the market for financial technology.
Portfolio managers are no longer satisfied with just having access to a market prices on their trading screens. They are increasingly wanting access to data maintained in middle and back office systems in order to gain deeper visibility into the overall costs to the firm.
“We see more and more requests from the front office to see some of the information that exists within the back office systems,” he says. “There’s a requirement for the traders themselves to see all the market prices, plus a range of other information that’s coming from their back office and middle office functions... Having advanced analytics, algorithms and optimisations that can help clients trade efficiently has become more important.”
This trend is also being amplified by the migration to the cloud, which has allowed asset managers to quickly and easily access the huge computing power needed to deploy powerful AI and machine learning tools.
“We leverage AWS within Cassini, and it gives us really good scalable cheap compute, to be able to provide complex analytics to clients,” he says.
As asset managers shift more and more of their systems to the cloud, this is a trend that is only likely to grow further in importance.
Thomas Griffiths, Head of Product, Cassini Systems
Thomas Griffiths has almost two decades worth of experience in the capital markets and financial services sectors. Starting his career at ABN Amro bank in the early 2000s, Thomas has since held numerous senior management roles including head of Equity at RBS and head of business management at TriOptima. Most recently, Thomas can be attributed to TriOptima TriCalclate’s success, in his role as CO-CEO. Now, Thomas is Head of Product at Cassini Systems, and the primary driver of the Product vision; overseeing the development and management of the product’s roadmap and creation of solutions that deliver value to both customers and business goals.
Remote working brings benefits, but also security fears
For asset managers, the past 18 months have been a rollercoaster ride as the pandemic has forced them to embrace new ways of working.
The implications have been profound as it has become more critical than ever for management firms to offer staff – everyone from portfolio managers to back office teams – the ability to access essential systems remotely. Many firms which were unable to do this initially have found themselves scrambling to update their technology. But the surge in home working has also fuelled mounting fears over cybersecurity.
How can asset managers ensure their systems are as safe as they can be from the prying eyes of unwanted guests or from hackers seeking to disrupt or inject ransomware?
“Businesses have increased the number of opportunities for cyber attacks massively, because every single device being used outside of traditional office network is of course an opportunity for cyber breach in essence we have decentralised cyber security,” says George Ralph (pictured), global managing director of RFA, an IT consultancy, which specialises in the alternative investment sector.
Without the protection offered by a corporate firewall in an office where data is held on physical servers, the “attack surface” for individual firms has increased dramatically. Hackers can now penetrate a corporate network by targeting an individual smartphone or laptop being used by an employee at home, with potentially devastating results.
Ralph says: “Most people are aware of that now because we’ve been in this situation for about 18 months. What is apparent is that the level of cyber attacks and breaches has increased significantly, so firms must review their original remote working solutions to ensure their cybersecurity strategy is robust for the long term hybrid working environment.”
During the second quarter of 2020, IT security firm McAfee recorded a 605pc increase in cyber attacks. The attacks increased again by 240pc in the third quarter and by 114pc in the fourth quarter of the year as hackers launched an unprecedented onslaught against more vulnerable organisations.
Long-term thinking needed
Ralph says that asset managers need to be thinking about how to prepare for the future as this new world of hybrid work is clearly here to stay. That means firms need to consider whether they have the right technology stack and security measures in place to support their activity for the long-term.
“It will be interesting to see how the hybrid working model plays out. At the moment, it doesn’t really look like many people are going to go back to the office five days a week,” says Ralph. “So how do we secure these distributed networks? We have to decentralise our cyber security so that it works across every single endpoint, because we have moved away from that office-based firewall approach.”
Part of the solution, of course, lies in educating employees to take extra precautions when handling sensitive data – for example by not using certain applications which may pose an extra threat when used on a home wifi network.
Collaboration tools like Teams or Sharepoint are likely to be more secure than sharing big files via email or applications like DropBox. But asset managers also need to ensure they have the right software, cloud provider and data management strategy in place to support their business – and they need to think about forging a new BCP plan in the event of a cyber breach. That creates new challenges communicating with the workforce in the event that their systems are compromised or infected with malware.
Founded in 1989 RFA, which has over 800 clients globally split fairly evenly between hedge funds and private equity, is an expert in this field. The firm has its own dedicated Security Operations Centre (SOC) designed to monitor suspicious activity on all of its clients’ networks 24 hours a day, 365 days per year.
Typically, this kind of service is provided by an outsourced third party provider but RFA offers its own in-house managed detection and response service for clients.
Ralph says: “The Security Operation Centre monitors our client’s networks and looks for any anomalies. It will raise an alert to RFA and the clients saying: ‘Look, something is happening on this network that doesn’t normally happen’. That is a preventative measure to try and reduce the risk of cyber attack by blocking the potential breach before it gets as far as your network.”
Data management is key
For asset managers, there are few technological priorities that are more important than having the right data management strategy in place, he says.
“Once you’ve got your data, we can help you store it, we can help you keep it safe. That’s where cybersecurity comes into it because all of this data is extremely valuable, whether it’s reporting data or client data. Do you understand where your data is, how it is being accessed and what cybersecurity measures you have in place?”
The new world of hybrid work poses other, more complex challenges which technology can help solve. Remote working has allowed businesses to continue operating through the pandemic and offered great flexibility to workers and their employers. But it also poses significant new challenges. Above all, how do firms build meaningful relationships with their clients, investors or business partners at a time when they rarely meet them face to face?
Video calls and collaboration tools can help with this of course. But they only go so far in helping build trust and understanding.
“People aren’t meeting so much at the moment, so it’s about how you use tech to deliver what’s missing in terms of human interaction,” says Ralph, adding that asset managers need to think carefully about how they can best use technology to overcome these hurdles.
Find the right partner
The key, he says, is to find the right outsourced technology provider who can help asset managers navigate all the different options that are available to them. “How are you going to decide from all of the different options available in the market what is going to work for you? What is that outsource partner going to do to support your business? These decisions can have a big impact on your business.”
Technology has allowed firms to keep operating throughout the pandemic with surprisingly little disruption, but now they need to think ahead to ensure they have the right systems in place and are correctly configured for the future.
George Ralph, Global Managing Director & CRO, RFA
As Global Managing Director and CRO of RFA, George Ralph is a technology and business leader with a proven track record of strategic alignment, process improvement and guidance. Having been both a COO and a CTO of his own technology firms over a nineteen-year period, he looks to provide transparent guidance to every business he serves and the people he leads. George has extensive delivery and technical experience in cloud and data architecture, large-scale migrations utilising leading technology brands and IaaS offerings. An Assessor for the British Computer Society (The institute of IT) and a Certified IT professional, George is keen to ensure that the RFA gives its clients the highest levels of service.
Cloud-based data solutions unlock big benefits for the asset management industry
“What we have seen in 2021 is an acceleration in the adoption of cloud-based infrastructure,” says Alex Dobson (pictured), SVP of Product at global financial technology and professional services firm Arcesium.
“The pandemic certainly played a role as firms that leveraged cloud-based technology adapted to the challenges of being fully remote. As firms struggled to manage legacy in-house infrastructure, a cloud-first approach went from being a choice to the choice for many of these firms.”
However, for many asset managers, the migration to the cloud can be a daunting prospect.
While the process of shifting operations from in-house technology to a cloud-based solution requires careful planning, the long-term benefits are enormous. Potential risks can also be mitigated by establishing a strategic relationship with an established SaaS provider, such as Arcesium.
Headquartered in New York, Arcesium is a developer of cloud-native financial software that services clients in the financial services industry, including hedge funds, banks, fund administrators, institutional asset managers, private equity firms, and sovereign wealth funds.
The firm helps these organisations manage their financial data and their post-investment processes through technology solutions. Arcesium also offers its clients dedicated teams accounting, operations, treasury, and data management professionals to help support their operational needs.
Arcesium’s solutions are delivered via client-specific virtual private clouds provided by Amazon Web Services (AWS), the world’s biggest cloud provider.
Dobson believes the advantages offered by the cloud are becoming increasingly clear and more compelling as time goes on. The cloud provides the most efficient way to ensure availability, scalability, and reliability over time while also facilitating compliance with leading information security protocols. Leveraging AWS has allowed Arcesium to quickly address clients’ changing business needs as well as adapt to market changes and volatility.
Opportunities for innovation
The advantages of cloud-based solutions extend beyond the ability to access highly scalable storage and computing power.
The cloud also opens up new opportunities for innovation, allowing customers and providers alike to quickly embrace new technology. This flexibility allows firms to revolutionise how they’re doing business.
“With some of the new cloud-based technology available today, firms within the financial services space are completely rethinking processes – many of them manual – that have remained the same for decades,” says Dobson.
Arcesium has embraced new, innovative technology through a partnership with Snowflake, a cloud-based data warehousing company. This partnership allows corporate users to store and analyse their data in Arcesium’s platform far more effectively than before.
“It’s a modern way for us to work with our customers to share data. We’re able to provide our customers with direct, real-time access to their data via Snowflake Secure Data Sharing, eliminating redundant and inefficient data stores across organisations.
“Additionally, Arcesium works with customers to allow them to independently contribute other data sets to be easily integrated with their middle- and back-office data in a flexible, self-serviceable manner. This ensures both organisations can access a rich, consistent data set across all relevant stakeholders.”
Combined with business intelligence and data visualisation tools, these newly available data sets allow Arcesium’s customers to unlock additional value in their workflows, ranging from quickly analysing historical data to deriving new data sets in order to meet the demands of a fast-changing environment.
“Asset managers have to be able to quickly react to the demands of their investors,” he says, citing the recent surge of interest from investors in environmental and sustainable governance (ESG) as an example.
“A current example is the embracing of ESG data. With that comes the requirement to manage that data properly and verify to investors that you’re following ESG guidelines.”
What’s next in cloud-based solutions
Dobson believes cloud-native solutions like Arcesium allow asset managers to respond to clients’ ever-evolving demands much more rapidly. Users can swiftly address the needs of investors or regulators given the open access to their data and scalable computing power offered by cloud service providers.
While Arcesium has made significant gains in how data is shared with customers, it continues to work with many other providers in the ecosystem. Data is shared on a daily basis with prime brokers, custodians, and fund administrators. Many of these communications still occur via files being shipped back and forth across organisations.
“As we look ahead, we’ll see firms, including Arcesium, moving to embrace new technology such as Snowflake Data Marketplace. These new tools will enable faster and more efficient flows across disparate organisations, with clients benefiting from a solution with a time-to-market that is measured in days and weeks, not months and years,” Dobson notes.
He continues: “While machine learning has been a buzzword for a few years now, the move to a centralised, efficient data store supercharges the potential utility of such technology. You can deploy various algorithms ranging from new data mapping to daily anomaly detection to get data analysts out of the business of mapping and cleansing data. Instead, those resources can be redeployed to higher-value activities with an eye toward strategically growing the business.”
Alex Dobson, SVP, Product, Arcesium
Alex Dobson is a Senior Vice President leadingArcesium’s Product team. Prior to the formation of Arcesium, Alex was aVice President with the D E Shaw group for eight years where he led a trade accounting and operations team supporting the macro and liquid alternative trading desks. He graduated with honours from PennsylvaniaState University with bachelor’s degrees infinance and economics.
Levelling up your front-office experience
By Justin Casenta, SS&C Eze –Front-office technology has evolved. Hedge funds today need a sophisticated front-office engine to differentiate their business. But many systems aren’t equipped to keep pace with innovations designed to streamline trading processes.
All-in-one, not one-size-fits-all
We often hear an “all-in-one” system is what’s required to meet investor demands. But it’s rarely a one-size-fits-all. However, careful technological due diligence can help ensure the system you choose has the necessary advanced trading tools your front office needs to stay ahead.
Even as order management and execution management systems continue to converge, how the consolidated systems work together varies exceptionally. Fund managers want seamless integration, but many standard API integrations aren’t delivering workflow benefits. The real value is in synchronisation, and few platforms have achieved a truly synchronised OEMS experience.
Switching systems is costly, so it’s critical to look for a platform designed to support front-office workflows from the outset. The best all-in-one platforms offer a flexible architecture, so you can choose the entire front-to-back or a componentised rollout iteratively. Ultimately, it’s about creating a seamless and cohesive investment experience.
When expertise matters
Reliability and experience are critical. Working with vendors with expertise is essential to bring systems together and offer insight across the investment process. Working in the front office is about speed and agility. Ask vendors upfront about their clients – i.e., how actively are they trading, how much are they stressing the system compared to your daily workflows, how complex are their strategies? Most importantly, when there are issues – how quickly can you get in touch with live support? Not every vendor can address mission-critical or time-sensitive problems with the urgency and efficiency the front-office demands.
The high cost of falling behind
As we move into a post-Covid new normal, hedge funds continue to diversify investments to stay competitive and attract investors. This environment demands front-office transformation. Automated trading, Algo wheels, flexible what-if modelling and analysis, natively supported multi-leg trading workflows, and tightly integrated compliance workflows are just a few prerequisite tools. Seamlessly integrated, real-time compliance and exposure monitoring across asset classes within the same grids and reports reduces operational risk. At the same time, automation diminishes manual processes and shifts the focus to alpha-generating activities.
The cost of falling behind in the front office is higher than ever. Embracing the trends by transforming your front-office experience ensures your trading team is equipped to operate more efficiently and effectively. With better insight to make informed and immediate market decisions, you can execute ideas and meet the best execution requirements without sacrificing speed-to-market. You’re differentiating your business in the front office but are you prioritising the front office in your technology decisions? If you aren’t, you should be. By partnering with an experienced vendor that is reliable and flexible, hedge funds will be well-positioned to avoid a technological deficit in the post-pandemic era.
Justin Casenta, Director, Sales Engineering, SS&C Eze
Justin Casenta joined in 2011 and is a Director of SS&C Eze’s Sales Engineering team in New York. He leads a team of sales engineers responsible for presenting in-depth and tailored product demonstrations to prospective clients and serving as experts on SS&C Eze products throughout the sales lifecycle. He worked as an Implementation Manager at FlexTrade Systems from 2017-2019 before returning to SS&C Eze to take up his current leadership role. Justin graduated from Fairfield University with a bachelor’s degree in Information Systems and holds an MBA from Pace University.
Keeping it lean and mean
There’s no question that over the past 18 months, the pandemic has changed the way asset managers operate. Traditionally, fund managers would have done many things in-house with their teams. However, these days, they are increasingly seeking to outsource activities to a third party.
Ben Goderski, Sales Director at SS&C Advent, has witnessed this phenomenon first-hand. He says many funds are pushing to minimise costs by reducing their technology footprint and evaluating new and more innovative ways of doing business.
Above all, they are eager to do more with a small team, who can then concentrate on the core elements of their business – meeting client demands and managing their portfolio.
“The client’s focus is to keep it lean, and focus on core client demands and finding alpha,” he says.
This drive to outsource, or “co-source,” more activities comes as many asset managers rethink their real estate and operational footprint.
Keeping it lean and mean
As we have shifted to a remote working environment, many executives have realised they can do their job just as effectively with a significantly smaller physical office.
This realisation prompts many firms to shift to new, smaller and more flexible spaces and reconsider how much non-essential staff they need to employ on-site.
“We see a growing acceptance of outsourcing as people adapted to working remotely. As a result, there is more trust in the outsourcing model,” says Goderski.
Software vendors are increasingly taking on more day-to-day operational outsourcing tasks — everything from account reconciliations to recordkeeping, administrative and reporting duties.
Managed services – a liberating step
For fund managers, the switch to managed services can be liberating, explains Goderski.
For example, they no longer have to worry about extended staff absences. In addition, under a managed service contract, ownership of the software falls on the technology vendor rather than the client.
Goderski adds that the trend towards outsourced solutions is happening across the board — from the largest asset management firms to much smaller boutiques and start-up firms.
SS&C Advent offers a range of portfolio management and account management solutions used by seven of the world’s top 10 fund administrators. In addition, Geneva is the backbone of SS&C’s fund administration business. SS&C also offers an investor relations portal.
The trend towards managed services has also quickened due to the growth of cloud offerings, changing the way many businesses operate — not just asset managers.
“Most companies have introduced significant changes to their operating model in the last year or two. Previously, on-premise installations were standard, whereas now many companies are looking to exploit cloud technologies to improve performance, resilience and efficiency.
Goderski says that since 2018, managed services have grown substantially, with many companies looking to avoid “on-premise” installations wherever possible.
Cybersecurity poses a growing challenge
The shift to remote working may have led to many changes in how asset managers are working, but it has also created increased awareness in cybersecurity.
“We’re seeing a lot more cybersecurity-related requests coming through from our client base,” says Goderski. “We offer hosted server solutions for our clients, and we saw last year an increase in the auditing focus in this area, from both clients and regulators.”
Another trend he has observed is asset managers seeking to diversify the kind of funds they offer to investors. “Investment diversity is increasing in our client base. Asset classes are growing across our client base, across all types of organisations. As a result, the lines between types of firms are becoming more blurred.”
Goderski says this shift means technology vendors need to offer flexible solutions to asset managers.
“We are seeing clients’ expectations for lighter implementation and ongoing management of their technology, whilst simultaneously looking for increased functionality and agility. As a leading vendor in the market, these are exciting times. We have the unique opportunity to be involved in helping lead the outsourcing evolution to meet clients’ ever-changing needs.”
Ben Goderski, Sales Director, SS&C Advent
Ben Goderski currently holds the position of Sales Director at SS&C Advent. Ben has spent over 20 years in the fintech sector supporting a wide variety of clients including hedge funds, wealth managers and service providers. Throughout his career, Ben has developed an extensive knowledge of the changes and challenges the investment market faces.
Gaining the edge
In a race to glean fresh insights from ever larger pools of data, asset managers are deploying powerful new tools to gain an edge over their rivals.
To craft their trading decisions, quantitative fund managers are increasingly using so-called “nowcasting” techniques. This is the art of using real-time data to spot emerging economic trends well before they are picked up by regular official reports on GDP growth, inflation, employment, etc.
But all of this requires sophisticated technology to ensure big data sets can be harnessed, crunched and analysed fast using cutting edge techniques to drive real value for investors, says Angana Jacob (pictured), head of product management at SigTech, a specialist in cloud-based quant technologies for asset managers.
“Nowcasting tells you what is going on in the economy without having to wait for a public release,” she says. “There are so many different data sources: traffic, footfall, shipping, cargo boats, trade patterns... It’s a lot of data and some is exhaust data, in the sense that it is derived from other industries, or from consumers doing transactions. It’s often underutilised.”
Data management is key
Handling, storing and then drawing useful insights from vast amounts of this kind of raw data presents big challenges.
“There is of course excitement about alpha and extracting insights, but before you get to that stage, the foundational data management architecture has to be pretty robust,” says Jacob.
“It is challenging because of the size and heterogeneity of the data sets. It’s not the traditional megabytes, but terabytes and petabytes – and also how the data comes in.”
She continues: “There are so many multiple sources and the data itself is complex. So there›s a need for robust data processing and harmonisation, before you can think of deriving any kind of insight or conclusion. And then you also want the entire process of analysing multiple datasets to be replicable, otherwise it is challenging to do at scale.’
Spun off from hedge fund Brevan Howard in 2019, SigTech specialises in this kind of technology and offers its own analytics platform to hedge funds and other asset managers.
Jacob says: “It’s an end-to-end platform from data to research analytics, and then to deploying trading strategies live.”
SigTech’s technology is now being used by fund managers with up to USD454 billion in assets under management, including Alliance Bernstein and GAM.
SigTech’s unique expertise lies in its prowess at backtesting – assessing the viability of a trading strategy by discovering how effective it would be using historical data while guarding against “overfitting”.
Jacob claims the system is “nuanced, accurate and as realistic as possible”.
She says: “So what we offer to clients is that, rather than multiple disparate systems working not very harmoniously together, we provide a single cross-asset system & quant functionality and we integrate with clients’ execution systems as well as other data sources.”
Accelerating trend
The steady growth of cloud computing is allowing quant funds to access increasingly powerful systems to store and analyse the big data sets on which they depend.
“Cloud of course enables this large amount of data because you can easily deploy multiple virtual machines. You can spin up your cluster of servers, and then you can do all your deep learning models pretty easily. It’s highly scalable.”
It’s a trend that looks set to continue.
Angana Jacob, Head of Product Management, SigTech
Angana Jacob is Head of Product Management at SigTech. Prior to joining, Angana spent more than a decade in indices and quantitative strategies at Deutsche Bank, S&P Dow Jones Indices and State Street. Her roles have spanned research, development and marketing across asset classes as well as building out State Street’s ESG analytics. Angana has a degree in Computer Science from Madras University and an MBA from IIM Ahmedabad.
ESG: In a good place
In this exclusive Q&A with Hedgeweek, Daniel Johnson (pictured), Senior Vice President, EMEA Fund Services for SS&C Technologies, explains the surge of interest in ESG investments – and examines the growing role ESG data is playing in helping shape asset management decisions.
Is ESG investment a new trend?
Not at all. More than 200 years ago, it began with Socially Responsible Investing (SRI). In the last 20 or 30 years, SRI has moved on significantly.
In 2006, the UN published its Principles for Responsible Investing (PRI). Then, in 2015, its Sustainable Development Goals said we should be using capital in a more productive way to benefit humanity and build long-term sustainability.
The number of signatories to the PRI has risen from 100 to over 4,000 today. These are charitable foundations, enlightened sovereign wealth funds and pension funds who are all saying, “We’re not going to give the money to any manager based on returns. We are interested in what they are going to do with it. But, on the other hand, we also don’t want them to give money to any potentially problematic groups or anybody investing in X.”
More recently, the trend has flipped again. No longer is it about investors saying they will not invest in cluster munitions or tobacco or whale hunting or gambling. Instead, ESG investors only want to invest in specific areas these days, which meet their overall sustainability objectives. So, for example, investors are increasingly interested in giving money to companies investing in energy efficiency, green transportation, pollution prevention, and reduction.
So how are those investment decisions being taken? And what role does data have in supporting the trend?
Obviously, investors don’t want to be told: ‘Trust me, it’s gone to a good place.’ They are increasingly saying: ‘Show me it’s gone to a good place.’
To do that, we need reliable, consistent data so that ESG exposure can be measured and reported credibly. As a result, asset managers are being asked to generate reports and offer ESG monitoring, goals, and targets for their investments.
Investors can see how much capital an asset manager is investing in affordable housing, education, sustainable agriculture or healthcare – even if they don’t give the specific details of the investments they have made.
That sounds tricky. How close are we to getting reliable ESG data on which everyone can agree?
This is one of the significant challenges the entire industry is facing right now. A valid comparison may be to look at the credit rating agencies.
Suppose you go to Fitch, Moody’s or S&P and ask for a rating on a company. The calculation is based on generally accepted and widely available data and similar across rating agencies. In contrast, when it comes to ESG, you are likely to get some quite different answers. The methodologies vary depending on the vendor, the weightings they apply, and the information source.
So, using the right ESG rating vendor becomes a challenge.
There are two approaches to rating a company’s ESG performance. The first approach is to rely primarily on information generated by the company’s press releases and other publicly available information. The second approach relies on external stakeholders – regulators, industry peers, and the news media. These external sources tend to be quicker to flag controversies when things go wrong.
Most ESG vendors produce ratings based on the company’s data – companies like MSCI, Refinitiv or Sustainalytics.
There is a smaller group with the external stakeholder approach – like TruValue Labs and Arabesque. However, they tend to be much smaller firms.
So what kind of tools does SS&C provide for asset managers who want to use ESG data?
We provide the technology solutions which make ESG data available to investors and fund managers. They can use our tools to analyse their portfolios or draw comparisons between different companies.
So what’s the best approach overall?
I think the more asset managers and investors realise no data is perfect, we will see more managers advocate using multiple sets of data.
Is ESG investing a flash in the pan?
Some people are still sceptical about ESG and think it will either go away or never be fully adopted.
I can’t entirely agree because regulation and investors push managers and companies to take all of this more seriously.
Above all, it’s driven primarily by climate change – and I do not see these issues going away for the foreseeable future.
The EU, the UK, the US and Singapore are all looking at stricter regulation on ESG reporting.
Ultimately, regulators are going to push asset managers and investors to act.
Are there other reasons why asset managers are looking so closely at ESG data?
Yes. Some of these companies – for example, renewable energy generators or wind farm developers – have seen their valuations go up significantly as investors look for sustainable investments, partly because they’ve got exceptional ESG ratings and green credentials. So then, some managers are saying, ‘I want to buy the ESG data so I can identify the next sustainable company.’ They are buying the data as a kind of market intelligence – because they think it will benefit them financially.
This data can also help identify the companies with a riskier ESG profile. For example, you don’t want to buy into a company to discover a side-line interest in small arms, gambling or tobacco. That’s when your financial statements are strong, and the dividends are above average, and yet you may have a lower valuation. A low ESG rating may offer the answer. For example, many people will not include a tobacco company in their portfolio, and so it will get excluded by a large segment of the investor universe.
Daniel Johnson, SVP, EMEA Fund Services, SS&C Technologies
Daniel Johnson is a Senior Vice President, Fund Services at SS&C, with over 15 years experience in Fund Services. He is the former head of Wells Fargo European Fund Services and the former global head of valuation and data management. He was the co-author of the 2016 AIMA guide to sound practices on Operational Risk and helped write the 2014 and 2018 AIMA guides to sound practices on Valuation. He was part of the team that launched LaCrosse Global Fund Services in 2008 and Black River Asset Management in 2003. He is a CFA Charterholder and has a Law degree.
Bigger is better in July, as larger hedge fund managers’ returns outweigh industry average
The biggest hedge fund managers outflanked the wider industry in July, with larger managers edging into the black and the broader sector suffering its first down month since the start of 2021.
The 10 largest hedge funds tracked by eVestment advanced 1.18 per cent last month, while aggregated performance for the industry was down slightly in comparison, sliding 0.32 per cent in July.
However, overall industry performance remains up 8.89 per cent since the start of the year, while the larger funds lag behind with a 5.81 per cent return over the same seven-month period. eVestment performance metrics show the 10 biggest hedge funds’ year-to-date performance is almost double that of their total annual return last year, which was 3.02 per cent.
Sectorally, the 10 largest equity long/short funds fared even better, scoring a 1.79 per cent July return, which puts them up 4.37 per cent YTD. Since the start of the year, the 10 largest managed futures funds have risen 10.26 per cent, aided by a 1.43 July gain.
Overall, more than half (51 per cent) of all hedge funds reporting to eVestment were in positive territory for the month.
“Looking at the groups of positive returns and negative returns, the issue in July wasn’t that losses were large during the month – the average loss of 2.51 per cent has been surpassed several times in the last year,” said Peter Laurelli, eVestment’s global head of research.
“Rather the average gain was very low at 1.77 per cent. That is the lowest average gain in over two years, since July 2019.”
Only managed futures strategies managed to generate a monthly return of more than 1 per cent, eVestment noted, which puts the sub-sector up 8.23 per cent since the start of January.
“The differing results between macro and managed futures strategies in July was remarkable given they tend to operate in generally similar markets in aggregate,” said Laurelli, noting macro funds’ 0.60 per cent July slide.
“The return differences in favour of managed futures funds was evident not only among the broad samples, but also within the 10 largest reporting products. For the year so far, the largest managed futures funds are outpacing the largest macro funds 10.26 per cent to +1.60 per cent, respectively.”
Like this article? Sign up to our free newsletter Related Topics Results & performance FundsTech trends continue to evolve for the post-pandemic future
By Robin Pagnamenta – It’s been a year that many of us would probably prefer to forget, but for asset managers the pandemic has turbocharged many underlying technology trends that were already in place before anyone had ever heard of Covid-19. The migration of more and more activities onto the cloud has been underway for years, of course – propelled above all by the sheer volumes of data which asset managers now juggle daily in order to shape their investment decisions.
But those firms which had already shifted many of their activities into cloud-based solutions well before the pandemic hit last March found the transition to working with a dispersed workforce much easier – and faced less disruption compared to those heavily reliant on on-premise infrastructure and in-house teams of IT staff.
John Kain of AWS, the world’s biggest cloud provider, says the charge into the cloud by the industry has been led by those firms which rely on the most data intensive investment strategies – above all the quant funds – but he thinks there is still plenty of room for overall growth as smaller firms and those with different strategies contemplate the long-term future of their tech stack post-pandemic.
“I think we’re still relatively early in the overall migration of the asset management industry to the cloud,” says Kain. “There are obviously examples of firms that have completely made that move but I think it really depends on their investment processes.”
Cloud-based tools
Either way, with more and more asset management activities now being conducted in the cloud, the sophistication of the tools being used by fund managers to make decisions and automate different processes – everything from accounting to compliance and providing a platform for investors – are also advancing rapidly.
Experts agree that a host of new technologies based on machine learning and artificial intelligence are now creeping further into the mainstream, as the cloud has helped to democratise access to formerly arcane pieces of bespoke technology available only to the very biggest and most deep-pocketed firms on the planet.
Angana Jacob of SigTech, a software firm which specialises in developing models for backtesting the investment strategies developed by big quant funds, says these advances mean portfolio managers are able to incorporate new types of data that were previously unavailable to them or too difficult and expensive to access.
“We are seeing the rise of an expanded toolkit of very sophisticated quant techniques coming up,” she says. “Data is needed to make sure your quant strategies are resilient.”
She gives the example of how real-time “exhaust data” – raw information chugged out by consumers for example when they use their credit cards or go shopping online – is increasingly being harnessed by asset managers to determine trends in the economy well before they are picked up by official statistics.
The availability of natural language processing – AI that can scrutinise company news and announcements to detect shifts in investor sentiment – are also being deployed by portfolio managers seeking to forge new trading methodologies.
Cybersecurity
Of course, another pressing concern for fund managers remains cybersecurity. It’s no secret that the pandemic triggered a huge surge in cyberattacks, linked to the sheer number of people working from home on insecure home wifi networks and devices.
Unprotected by the firewalls most companies use to defend their own office servers, this makes many corporate networks far more vulnerable to attack because of the exponential growth in the “attack surface” they can seek to penetrate.
“We now have a distributed network and we have increased the number of opportunities for cyberattack massively,” says Kate Horne of RFA, which offers a service which helps firms to detect and respond to attacks.
This shift in working habits, which most believe is here to stay, towards a new model of hybrid working means firms need to consider a new approach towards how to secure their systems and data from potential attack.
This theme of how to decentralise cybersecurity to cover all of the systems being used by individuals working across your network – not just those sitting within your office – is another critical trend which is likely to only grow in importance in the year ahead, Horne says.
It is also a trend which is shifting perceptions of cybersecurity across the industry. Historically, many firms were reluctant to move some of their critical data to the cloud because of security fears – but that is now changing, according to SigTech’s Angana Jacob.
“Cloud adoption is increasing and I think some of the mindset barriers have changed,” she says. “There’s an understanding now that cloud can be more secure than your infrastructure in house.”
There are external factors which are affecting the technology decisions taken by asset managers too. One significant change is looming large on the horizon over the coming months with an estimated 1200 asset managers due to be brought into new Uncleared Margin Rules (UMR), which will come into effect this September and in 2022.
By forcing asset managers to hold bigger margin requirements for non-centrally cleared derivatives, the new rules, which were first drawn up by international regulators in the wake of the 2008-9 financial crisis, will have big technology implications. The new regulatory burden to comply with UMR means firms will need to embed new reporting systems and software – or sign up a technology firm to take on many of the necessary tasks.
Shift to managed services
The explosion of cloud-based solutions is encouraging many firms to embrace more managed technology services provided by third parties.
Another consequence of the pandemic has been a growing demand from asset managers to keep their real estate footprint as light as possible.
With many companies rethinking their whole presence in traditional city centre offices, many are considering outsourcing new activities previously undertaken by in-house teams of middle and back office staff.
Many asset managers are asking their technology vendors to undertake new tasks – from administrative and reporting duties to trade reconciliation activities – leaving smaller ‘lean and mean’ teams to focus purely on the most critical areas of their business – portfolio management and investor relations.
Like this article? Sign up to our free newsletter Author Profile Related Topics Technology & software solutionsTechnology Innovations in Focus 2021
In this comprehensive report on technology trends in asset management, we examine the impact of the pandemic, how cloud computing is continuing to reshape the industry and the growing power and scope of new tools powered by AI and machine learning using giant data sets.
Redhedge rowing crew to race in the Grand Challenge Cup at the Henley Royal Regatta
Redhedge Asset Management's (Redhedge) rowing crew's entry in the Grand Challenge Cup at the Henley Royal Regatta has been accepted.
Redhedge is sponsoring a team of former rowers to compete in the Grand Challenge Cup, the most coveted race at Henley Royal Regatta. The members of Redhedge’s crew currently all have full-time jobs making it impossible to commit to elite training programmes required for participation. By facilitating their training and competition needs, Redhedge hopes to break down one of the main entry barriers into the sport.
Established in 1839, Henley is one of the oldest rowing regattas in the world and has been a staple of the British sporting calendar for decades. The event attracts crews from around the world, and to the rowing community, it is second only to the Olympics. This year, the regatta will take place over five days, between the 11 and 15 of August 2021.
Team leader, Joseph Guppy, says: “Racing in the final of the Grand Challenge Cup at Henley Royal Regatta is a dream come true. Simply put, this would never have been a reality without the support that Redhedge has given us.”
Andrea Seminara, CEO and CIO of Redhedge, says: “I am extremely excited to announce that our crew has been selected for the final of the Grand Challenge Cup at Henley Royal Regatta this year. The Grand is the top event at the regatta, and to put the level of competition into perspective, the current holders of this event are the New Zealand national team, who won gold in the Tokyo Olympics as the start of the month.
“To me this really highlights the value of our sponsorship, simply alleviating some of the financial barriers in the sport has allowed previously topflight athletes to race again at the highest level. Following the success of this year’s sponsorship, we turn our heads to the 2022 rowing season where we look to expand our reach and continue to drive the level of competition in the sport forward.”
Like this article? Sign up to our free newsletter Related Topics Funds‘Full steam ahead’: How fund managers can best prepare for “transformational” middle office outsourcing
A new in-depth white paper by SEI sets out how the fund management industry can best address the often complex and challenging process of middle office outsourcing, particularly in the rapidly-altered Covid-19 working environment.
In light of the sweeping changes brought about by the coronavirus pandemic and the rise of remote networking, the paper – titled ‘Outsourcing the Middle Office: An Asset Manager’s Guide to Successfully Execute the Outsourcing Transition’ – examines how fund managers can plan, prepare and resource for a successful outsourcing transition, either immediately or further down the line in future.
Produced in partnership with consultancy firm Citisoft, which focuses on assisting the buy-side asset management industry with operations and technology challenges, the study builds on an earlier publication from 2017 which spelled out certain best practices for transitioning the middle office.
The wide-ranging paper delves into the various steps in the outsourcing process, from the initial guiding principles which will help shape decision-making during the initial stages, and establishing a vision for the future operating model, to the design, development, configuration, and testing process for the new model.
Describing how establishing guiding principles is the “bedrock” of a successful outsourced model, SEI suggested firms that do not dedicate the necessary time and focus “typically face considerable difficulties reconciling expectations and requirements in latter phases.”
The study also weighs up relative merits of a “big bang” approach – in which all in-scope functions and portfolios go live at the same time – versus a phased process, when certain functions are transitioned to the outsource provider at different times.
Acknowledging the scale of the challenge facing hedge funds and other asset management firms who have taken the decision to outsource middle office functions, SEI pointed to the size and scope of what it calls a “transformational project” for firms in a remote or hybrid working environment, underlining how communication is critical.
“The jarring effect of Covid-19 clearly demonstrated the inherent capabilities of most service providers to shift quickly to a remote environment through cloud-based infrastructures, handle unprecedented volume spikes and support a global, 24-hour clock,” SEI observed in the paper.
“This is a particularly persuasive proposition when coupled with traditional benefits, including the asset manager’s ability to focus on its core portfolio management and investor servicing competencies and focus areas while gaining access to specialised operations and technology without ongoing investment in platform upkeep and scalability.”
The report stressed there is no standard timeframe for a middle-office outsourcing transition for hedge funds and other asset managers, noting such complex projects can – and often should – be multi-year processes.
“The service provider will have a standard transition plan that they customise for each asset manager, but the asset manager should also have their own plan with their internal tasks as well; both plans should be compared and combined to create a programme plan that will ensure any dependencies or conflicts are accounted for,” the study said.
“Additionally, the service provider will work with the asset manager to catalogue and begin outreach to affected third parties – such as clients, brokers, custodians, other intermediaries and service providers – to inform them of the change in relationship.”
It also discussed how the pandemic has forced asset managers and technology providers to implement enhanced cloud-based, collaborative technologies which will continue to prove vital throughout the outsourcing process.
“From videoconferencing to secure shared data, asset management firms are operating in a virtual world in their daily operations, and these capabilities and the corresponding comfort level will be beneficial in transformation as well.”
The paper recommended managers “stay active” in all stages of the process to “ensure the nuances of their specific requirements are met and all stakeholders are in agreement at every stage”, noting examples of less smooth and effective transitions where corners had been cut.
“Despite the challenges of navigating the pandemic and a new remote work environment, we have observed little impact on timelines and resources for middle-office outsourcing transitions,” the white paper concluded.
“Regardless of how workplace culture and remote/hybrid situations evolve in 2021 and beyond, we anticipate seeing managers move full steam ahead into outsourcing transition programmes.”
Click to read online or download the SEI white paper – Outsourcing the Middle Office: An Asset Manager’s Guide to Successfully Execute the Outsourcing Transition
Like this article? Sign up to our free newsletter Related Topics Services OutsourcingReconfigured retail: Covid-driven online sales boom nearing peak, says Toscafund’s Savvas Savouri
The boom in online retail during Covid-19 is substantially reshaping the UK’s consumer sector, but Toscafund Asset Management’s Savvas Savouri believes e-commerce sales may peak sooner rather later as restrictions finally end.
In a market commentary on Wednesday, Savouri – chief economist and partner at Martin Hughes’ hedge fund behemoth Toscafund – reflected on how the coronavirus pandemic sent online sales soaring as the UK entered a protracted lockdown.
However, looking ahead, he believes that multi-channel retail operators that offer both digital sales and ‘bricks-and-mortar’ stores may now have reached a point where their online offering has gone from a “disruptive competitor” to their physical presence to a “stable companion”.
Observing the rise in internet shopping, he noted that as recently as 2008, less than one-twentieth of UK retail sales were online; within a decade, that number had swelled to a fifth, as a result of online sales growing at an average of 20 per cent every year.
But that 20 per cent levelled off towards the end of 2019 and into 2020, nearing what Savouri referred to as ‘retail internet penetration’ (RIP) – before spiking back up towards highs of almost 80 per cent UK’s first coronavirus lockdown in March 2020.
“From hovering just under one-fifth, internet penetration of retail reached 35 per cent; 45 per cent for the online channels of non-food retailers whose physical presence had been hard closed,” he noted.
“We were never allowed to know whether e-retail’s lacklustre growth towards the end of 2019 and early 2020 was a mere pause, before another burst of strength, or the beginning of it moving towards far more modest growth.”
Building on this point, he suggested peak RIP “come sooner than many might otherwise suggest”, settling at around 25 per cent, he predicted.
While the exact RIP peaks will vary across categories of goods and services – such as supermarkets, non-food retailers with physical stores, and online-only merchants – at some point “all must reach a true plateau, rather than a mere pause in ascent.”
Predicting a sharp rise in UK employment towards “historic highs”, he noted: “The reality is that far from unleashing job destruction the rise of e-commerce has in fact caused a displacement into it of workers from traditional physical retail and leisure sectors. It has also generated a need to recruit and retain ever more manual as well as skilled workers.”
Underlining this point, he said: “The simple truth is that delivery to our doors is more worker intensive than our travelling to destinations to make a purchase. From the point of dispatch to point of delivery what we have come to buy on-line has involved more hands being employed for the same volume of goods sold than when we journeyed to make comparable purchases.”
Expanding further, he added UK consumer behaviour since 2008 has brought “seismic shocks” for UK commercial property – boosting, for instance, warehouses across the Midlands, while driving high streets and shopping centres towards vacancy or repurposing. At the same time, the Covid crisis had shown younger generations to be “particularly vulnerable to the need for social proofing and minimal grouping”, citing the growth of organic grocers, artisan bakeries and coffee shops.
“Having had so much change forced upon us by this accursed virus, we can all be forgiven for despairing that things will never again ‘settle down’. And yet they will, albeit at a different kind of normal from what we considered it before.
“When we return to our old normal, there will be new features. Our high streets, shopping centres and retail parks will be reconfigured. Reconfigured as elements see a change of use.”
Founded in 2000 by high-profile hedge fund industry veteran Martin Hughes, who earlier managed money at US hedge fund giant Tiger Management, multi-strategy firm Toscafund Asset Management today has around USD4 billion in assets.
Like this article? Sign up to our free newsletter Related Topics CommentRefinitiv launches USD IBOR cash fallbacks prototype
Following the Alternative Reference Rates Committee’s (ARRC) March 2021 announcement that it had selected Refinitiv to publish its recommended spread adjustments and spread adjusted rates for cash products, Refinitiv has launched a prototype rate.
The Refinitiv USD IBOR Cash Fallbacks, as the rates will be known, will leverage the firm’s extensive experience in administering benchmarks, such as Refinitiv Term SONIA, to create a family of US Dollar (USD) fallback rates for use in cash markets.
The London InterBank Offered Rate (LIBOR) underpins hundreds of trillions of dollars of financial instruments and contracts, making it one of the most widely used benchmarks in the world. On 5 March, 2021 the Financial Conduct Authority (FCA) announced that 1-week and 2-month US Dollar LIBOR settings will cease immediately after 31 December, 2021 and the remaining tenors will either be no longer representative or immediately cease publication immediately following 30 June, 2023. The USD IBOR Cash Fallbacks prototype supports market participants including lenders and borrowers with their migration away from USD LIBOR.
There are two versions of the Refinitiv USD IBOR Cash Fallbacks: one for consumer cash products, the other for institutional cash products. Both will be published to 5 decimal places.
Refinitiv USD IBOR Consumer Cash Fallbacks are based upon compound SOFR in advance plus the spread adjustment, which will gradually be introduced during the 12 months immediately following 30 June, 2023. Refinitiv USD IBOR Consumer Cash Fallbacks will be published in one-month, three-month and six-month tenors, both with and without a floor.
There are a number of different versions of the Refinitiv USD IBOR Institutional Cash Fallbacks. The Adjusted SOFR component includes SOFR compound in arrears, Daily Simple SOFR and SOFR compound in advance. Each of the SOFR compound in arrears and Daily Simple SOFR rates will be available with and without a lookback, observational shift, and lockout. Added to this is the spread adjustment and unlike the Refinitiv USD IBOR Consumer Cash Fallbacks there is no transition period. Refinitiv USD IBOR Institutional Cash Fallbacks will be published in up to 7 tenors including overnight, 1-week, 1-month, 2-month, 3-month, 6-month and 12-month.
Jacob Rank-Broadley, Head of LIBOR Transition, Benchmarks & Indices at Refinitiv, says: “We are delighted to have worked with the ARRC and the Federal Reserve to produce a family of prototype fallback rates for cash products that can support the industry migration of existing exposures away from USD LIBOR.”
Sang Lee, Managing Partner at Aite Group, says: “With an estimated USD5 trillion of business loans, consumer loans, bonds and securitisation exposures referencing USD LIBOR after June 2023 its essential that suitable fallback rates are available to ensure the continued efficient functioning of our financial system. These rates bring together extensive work by the ARRC and an experienced benchmark administrator in order to produce robust fallback rates that the industry can rely on.”
Firms are able to immediately commence evaluation of the behavior and suitability of the prototype as well as test technical integration. Refinitiv USD IBOR Cash Fallbacks prototype are available free of charge through the full suite of Refinitiv products, including Refinitiv Workspace, Refinitiv Eikon, Refinitiv Real-Time and Refinitiv DataScope as well as via the Refinitiv website.
Preqin acquires Colmore to support clients through the private market investment lifecycle
In a drive to better serve its clients and increase transparency and understanding of private markets, Preqin — a specialist in alternative assets data, analytics and insights — has acquired Colmore, a private markets technology, services and administration business.
Preqin supports more than 110,000 professionals globally in raising capital, sourcing deals and investments and understanding performance by providing them with the most comprehensive alternative assets data and insights. Colmore's key solutions include portfolio monitoring, analytics, fee tracking and validation, and fund administration services for its LP and allocator clients. The rapidly growing business monitors more than 3,000 private market funds and more than 40,000 holdings.
The new alliance between Colmore and Preqin will allow both companies to serve their clients across the entire private market investment lifecycle — from fundraising to due diligence and portfolio monitoring. Preqin also intends to enhance its market-leading benchmarks in partnership with Colmore, giving both companies’ clients the ability to compare their performance against the industry’s most accurate, timely and transparent benchmarks.
The acquisition solidifies Preqin’s and Colmore’s position as leaders in the private markets. A growing number of institutional investors are looking to the private markets, demanding cutting edge technology, data and integrated accounting and administration services. This helps them to better understand the market and streamline their operations, as they face new complexities from a heightened focus on ESG and diversification into new geographies and asset classes.
Ben Cook, CEO at Colmore, says: “It’s a huge day for Colmore. We’re delighted to announce our partnership with Preqin. Clients will get the best of our administration, monitoring and fee validation services, enhanced by Preqin’s global private markets data. Clients will be able to see their invested fund information, together with wider industry data, all in one place. We’re really excited about the future.”
Mark O’Hare, founder and CEO at Preqin, adds: “Colmore and Preqin both share the same vision — to make our industry more accessible by providing our clients with data and insights so they can make investment decisions with confidence. Preqin is delighted to have Colmore join the Preqin family. We have big plans for the future as we continue to enhance our solutions, and we cannot wait to get started.”
Preqin and Colmore successfully closed the transaction on August 5, 2021. Colmore will be fully owned by Preqin and run as an independent and standalone business. Ben Cook will remain the CEO of Colmore and join Preqin's Executive Committee. Both companies are planning to rapidly expand their headcount, and are committed to continue to grow their technology and product offering.
Terms of the acquisition were not disclosed. Houlihan Lokey acted as the exclusive financial advisor to Colmore on this transaction, with DC Advisory advising Preqin. Clifford Chance served as the legal advisor to Colmore, with DLA Piper advising Preqin.
Like this article? Sign up to our free newsletter Related Topics Deals & Transactions Acquisitions Finance & Insurance Services Research & AnalyticsManaged futures hedge funds end July in positive territory, BarclayHedge CTA data shows
Managed futures hedge funds ended July in positive territory, with cryptocurrency-based strategies fuelling the rise, new data published by BarclayHedge shows.
The Barclay CTA Index, which tracks the performance of more than 400 commodity trading advisors and managed futures hedge funds, added 0.37 per cent last month, and has now advanced some 4.91 per cent in the seven-month period since the start of 2021.
All trend-following sub-sectors ended July in the black, with Ben Crawford, head of research at BarclayHedge, observing how the managed futures industry withstood rising uncertainty “admirably” during a bumpy July.
“Despite concerns over the Covid-19 Delta variant and its accelerating rate of community transmission, global economies largely continued to produce positive signals and CTA funds kept pace,” Crawford said.
The gains were propelled by the sharp rebound in digital assets, which saw the Cryptocurrency Traders Index lead the CTA pack, scoring a 5.16 per cent gain in July and comfortably outflanking every other CTA sub-sector’s monthly returns.
The rise has pushed the benchmark – a measure of the average return of all cryptocurrency programmes in BarclayHedge’s database – to more than 84 per cent on a year-to-date basis.
Elsewhere, the MPI Barclays Elite Systematic Traders Index – which tracks the average returns of the 20 largest systematic traders – added 0.74 per cent for the month, and is now up 8.51 per cent since the start of 2021.
Among the best overall sub-sectors for the year is the Diversified Traders Index, which has risen more than 7 per cent in 2021, with a 0.27 per cent July gain. The Agricultural Traders Index is up 4.99 per cent for the year following a 0.52 per cent July advance.
The Systematic Traders Index was up 0.38 per cent last month, and has now advanced 4.56 per cent in 2021, while the Discretionary Traders Index has risen 6.09 per cent for the year following a July return of 0.22 per cent.
The Barclay BTOP50 Index, which tracks the performance of the largest CTAs open for new investment, gained 1.05 per cent in July, a rise which brought the BTOP50’s year-to-date returns to 7.09 per cent.
Like this article? Sign up to our free newsletter Related Topics Results & performance FundsWaystone reviews fund domicile opportunities
In a series of four articles for Hedgeweek in recent months, senior executives at Waystone provided expert analysis of the challenges and opportunities facing fund domiciles and asset managers at a time of change across the fund management sector in Europe and beyond.
Waystone, the global governance adviser, third-party management company and provider of specialist services to the asset management industry was formed by the merger earlier this year of DMS, MontLake and MDO. In its first article in October 2020, Why Cross-Border Fund Domiciles are transforming into Fund Management Hubs, Managing Director of Client Solutions, Daniel Forbes explored the post-Brexit regulatory landscape and how countries, both large and small, are jockeying for position to fill what he called “the void left by an increasingly isolated London” ahead of the UK’s formal withdrawal from the EU at the beginning of this year.
He reviewed the impact of a raft of supranational initiatives, as well as European-led initiatives, on fund structuring requirements across all key fund domiciling jurisdictions – including the Cayman Islands, Ireland, Luxembourg and a number of British Overseas Territories.
“Brexit is having a profound impact on the fund management industry, even before the UK formally withdraws from the EU,” commented Forbes. “With the FCA (the UK’s Financial Conduct Authority) no longer having a significant sway on the direction of European fund management regulation, the path is clear for the European Securities and Markets Association (ESMA) to promote a more Franco-German agenda.”
In particular, he pointed to the increased pressure that this new ESMA agenda was having on British Overseas Territories such as the Cayman Islands, Bermuda, BVI, Isle of Man, Jersey and Guernsey – as evidenced by the Cayman Islands being put on the EU “blacklist” of non-cooperative tax jurisdictions in February 2020, a move which they managed to reverse again in October after adopting reforms relating to its substantial private funds industry that were mandated by a combination of the EU and the OECD.
“The swift reaction of the Cayman industry to implement the Private Funds Law and register private funds within an EU-mandated six-month window shows that the message from the EU and the OECD was heard loud and clear,” wrote Forbes. “If you are a small country that relies on access to investors and financial market infrastructure based in larger countries, then non-compliance is not an option!”
Forbes went on to review the impact of the changing regulatory landscape for Ireland and Luxembourg – the two largest and most established EU-based cross-border fund domiciles – and for other European capitals like Paris, Frankfurt, Vienna and Amsterdam as a result of the UK having “veered off course from its position at the heart of the EU finance industry to becoming an outsider with ‘Third Country’ status” and what he called “the scramble to be the ‘new London’.”
With increasing supervisory scrutiny on the key issues of ‘substance’ and ‘delegation’, Forbes’s article also outlines the key items that investment managers need to know and do in this shifting landscape.
“The post-Brexit shake-up has presented opportunity and challenges for all global fund domiciling jurisdictions, with Ireland and Luxembourg closest to the epicentre,” Forbes said. “Brexit means the UK is no longer the logical choice for a cross-border European fund management company.”
Setting up themes to be explored in the following articles in the series, he commented: “The cost of compliance with the ever-increasing substance requirements is prohibitive for most groups to launch their own proprietary fund management company – thereby making the scalable, multi-jurisdictional ‘Third Party ManCo’ the logical partner to navigate these uncertain waters.”
In the second paper, Director Pádraic Durkan expanded on the theme – zeroing in on the opportunities, challenges and changes facing Ireland’s growth as a fund management centre, in an article headlined: Irish fund management companies – time to get serious about substance and oversight.
Giving an overview of the evolution of the Irish funds industry, Durkan highlighted the recent increase in the influx of financial firms either entering the Irish market or expanding their presence in Ireland as a result of Brexit – and the development of Ireland into an increasingly ‘substantive’ fund management centre.
Durkan commented, “The Irish fund industry that was once the preserve of lawyers, auditors, tax advisors, administrators and depositaries to service the funds, is now being increasingly populated by investment management companies to provide local management to the funds.”
He also described the move away from the formerly popular Self-Managed Investment Company (SMIC) structure to the ManCo structure – which is now gathering increased momentum as a result of an intensifying focus by the Central Bank of Ireland on the local substance of Irish management companies and the CBI’s introduction of CP86 (Consultation Paper 86).
According to Durkan, more recent announcements and measures by the Central Bank in relation to substance, governance, oversight, investor protection and delegation of managerial functions further demonstrate that the Irish regulators are serious about the need for managers to have properly staffed, operationally robust and effectively run ManCos.
“These entities will not simply be there to tick a box, but will need to be substantial independent operations with responsibility for oversight,” he wrote. “In concluding whether SMICs or under-resourced ManCos should be allowed to exist, the regulatory and industry view is clear – they should not be allowed to exist in their current form.”
In the third article of the series, David Morrissey, Global Head of Client Solutions, focused on the third-party management company sector, offering a personal perspective on its development in an article called: The evolution of the third-party management company sector: Conflicted.
The piece provides an insightful analysis of the potential for conflicts of interest in the combination of third-party management companies and depositaries in terms of governance and oversight; the changing attitudes and requirements of investors, regulators and the industry itself; the divergent approaches of regulators in Ireland and Luxembourg; the comparative distinctions between ‘one-stop shops’ and ‘independents’; and the prospects for further change and reform ahead.
In the final of the four articles, completing the circle, Managing Director Neil Coxhead analysed the UK’s new Long Term Asset Fund (LTAF) structure – plans for which were recently unveiled by the FCA, with the aim of offering retail investors access to more illiquid alternative asset classes such as venture capital, private equity, private debt, real estate and infrastructure – as a development that he believes gives “asset managers a hint of how UK fund regulation will develop after Brexit”.
Says Coxhead: “It’s clear that the UK Government and regulators wish to seize an opportunity to achieve several of their key objectives with the creation of the LTAF and the Chancellor of the Exchequer, Rishi Sunak, has set an ambitious timeline to have the first LTAF launched in the market by the end of 2021.”
Despite there being a number of technical and legal issues to resolve before the LTAF is launched, Coxhead believes the move underlines the determination of the UK Government to enhance the attractions of the UK as an international fund management location in a post-Brexit world.
He commented: “Waystone is very encouraged by the UK Government’s desire to ensure that the UK remains a world-leading location for asset management, and with an industry that can serve investors’ diverse interests.
“The success of the LTAF depends on a well-designed regulatory regime and on all parties understanding the new vehicle, its benefits and drawbacks. Our experience of supporting funds investing in alternative assets in domiciles such as Ireland and Luxembourg will provide clients with the assurance that they will be working with a provider that understands both the dynamics of the asset class and the UK funds regime.”
Like this article? Sign up to our free newsletter Related Topics ServicesFund Domicile Opportunities in Focus 2021
In this special report senior executives at Waystone, a provider of institutional governance, risk and compliance services to the asset management industry, deliver expert analysis of the challenges and opportunities facing fund domiciles and asset managers at a time of change across the fund management sector in Europe and beyond, including how, in the post-Brexit landscape, countries both large and small are jockeying to fill the void left by an increasingly isolated London.
In addition, David Morrissey, Waystone's Global Head of Client Solutions, offers his unique personal perspective on the evolution of the third party management company sector, while MD Neil Coxhead explores the UK FCA's proposals for a new Long-Term Asset Fund (LTAF) regime, and Director Pádraic Durkan examines the rise of the Irish investment Fund management company.