Legacy vs Modern Approaches to Servicing Hedge Funds

Over the last several years, tech vendors supporting hedge funds and other asset managers have introduced waves of new features to answer specific functional requirements for traders and portfolio managers. However, they have not made any significant advances toward the simplification of workflows from trade inception to client reporting—the type of advances that would allow fund managers to spend more time generating alpha and communicating their methodology to investors.

Workflow-simplification has been a trending topic in our industry.  Several years ago, the focus was on the lure of single OEMS (order and execution management system)— deemed by Wall Street & Technology to be the front-office equivalent of the fountain of youth.  Fast forward to 2015 and the OEMS discussion has expanded into an ‘end-to-end platform that combines an OEMS with portfolio and risk management capabilities’.  The research and consulting firm Celent recently remarked ‘the market is at the threshold of the OMS and EMS morphing into an order, execution, and risk management system.  This is especially true since the buy-side is continuing to move to fewer platforms and streamlined processes that allow for easier portfolio monitoring and compliance.’

As we’ve read through and participated in these studies, and partner with hedge funds that demonstrate the right pedigree / performance / growth strategy, this focus on workflow-simplification highlights concerns fund managers face every day— inaccurate valuations, the slowdown of key processes such as client reporting, and redemptions due to misrepresenting performance, all a result of patch-worked processes and data discrepancies between disparate systems.

Case in point:

In mid-2014, we were approached by a $90 million-dollar equity long/short options manager.  The firm managed three hedge funds and several Separately Managed Accounts (SMAs). The firm had a five year track record and was back in growth mode— but launching new products and putting more money to work on behalf of new investors proved challenging.  It's infrastructure consisted of four service providers (OMS / EMS / FIX Network / Hosting Provider), each positioned as 'best-of-breed' in their respective silos.  As the firm added new strategies and additional SMAs, there were discrepancies in data between the system used to execute trades and the system used to manage orders in a compliant manner.

The CIO had no choice but to implement manual, corrective processes to ensure his teams (investment and operations) were looking at the same data, and to accurately price the different fund structures on a daily basis.  The CIO found himself constrained by the time and cost associated with the corrective processes.  As a result, he funded a project to re-engineer the front-office systems and operations—his top priorities were 1) achieving up-to-the-moment, granular views of the drivers of performance and risk in each structure; 2) reducing the number of systems, processes, and costs to run the business; and 3) gaining a single book of record for portfolio statistics.

The firm selected the Liquid platform. In the end, this was about replacing several ‘best-of-breed systems’ that delivered a lot of unused capabilities with a single operating system that offered a wider breadth of front-office workflows augmented by outsourced processes to eliminate systems, headaches, inaccuracies and costs.

Modern approaches to servicing hedge funds

Over the last twenty-four months we partnered with emerging and established hedge funds to replace disparate front-office systems, and patch worked middle-office processes that kept the systems infrastructure running.  The incumbents were legacy-- different systems with different delivery models (installed vs hosted vs true cloud), and different code, software versions, content and databases.  This introduced multiple points of failure into the investment workflow which slowed down the most critical aspects of identifying and generating alpha, as well as mandates with investors that required institutional, repeatable controls that would manage the business during extremely volatile markets.

We purpose-built our solutions and services to provide hedge funds with a modern alternative to these legacy approaches still relied on today by 'best of breed' tech vendors to service their clients, and their clients’ clients. Everything we build is cloud-based and real-time.  Our clients have direct access to a sixty-person team of technologists and trading ops specialists that ensure these firms can better service their investments and their investors.

Our approach to servicing hedge funds redefines the concepts of 'mission-critical' and 'vendor-partner'.  Broken down into the four service pillars below (Platform / Data / Connectivity / Infrastructure), we've shifted the emphasis from a feature / functionality discussion to discussions on how the business can achieve optimal workflows from trade inception to reporting, faster time to market, streamlined operations and support, and an overall lower TCO. 

Platform-as-a-Service

Our hedge fund operating system, the Liquid platform, is real-time and broker neutral. It provides unified workflows and capabilities across order, execution and risk management as well as client reporting and shadow NAV.  Liquid allows our clients to invest in and track multiple strategies and multiple portfolios through custom interfaces built for traders, portfolio managers, heads of risk, CIO's and client reporting teams. It was built with emerging and established fund managers in mind— while most of our clients leverage the entire platform from a desktop or mobile device, a segment of our users leverage specific capabilities in the platform to solve more targeted requirements, such as a Real-Time Risk & Reporting solution.