Although most institutional investors are comfortable with the idea of fund managers outsourcing middle- and back-office functions while they focus on managing the investment strategy, they are taking great care and attention at the pre-allocation stage, as part of the ODD process.
Whilst they understand that there are numerous cost benefits and efficiencies to be gained using hosted platforms, they want complete confidence in who the platform provider is.
John Hynes (pictured) is CEO of HedgeFacts, a leading provider of middle- and back-office solutions to alternative fund managers. He notes that the cloud has become a significant game changer for managers as they seek to use hosted platforms to support their business activities, with disaster recovery of particular import; indeed, investors want to see real evidence of how managers put their DR plans into practice.
“There are a host of reasons that might prevent a manager getting to the office and if they are tied to being in a physical location to do business, that’s a limiting factor. Sometimes it could be as simple as a change in the weather; take parts of the East Coast that suffered intense winter storms recently. People don’t – and perhaps can’t – travel to work in those conditions.
“In that case, people need the flexibility to work from wherever necessary to manage the portfolio. However, the challenge to that is you still need the appropriate level of controls in place to monitor and manage how people are accessing systems in the network. A lot of time and effort goes in to monitoring those key requirements for our clients,” explains Hynes.
HedgeFacts can be set up with a hierarchy of controls whereby an individual user will have pre-set levels of authority to access different parts of the system on a ‘need to know’ basis. A risk officer, for example, will only have access to risk-related information and reports. They won’t have any access to the core accounting system, where they could potentially book trades.
“Using an audit trail we can monitor what access any user has made over a period of time,” says Hynes. “We can also set up the system so that people can only log in from specific locations or devices.
“We monitor the traffic that comes in to look for anything that deviates from those approved locations or devices.”
Having a platform like HedgeFacts monitor access controls in a night watchman capacity, can go a long way to reassure both managers and their end investors.
Hynes confirms he is seeing a significant increase in fund managers wanting to ensure that all of the internal reports and analyses they use for managing the book are produced on a systematic and automatic basis.
“We’ve worked over the past 12 months to automate the production of all of that information and reporting analysis.
“We aren’t an outsourced compliance officer but one of the things we do for Irish-based managers is to produce the information they require to submit for regulatory purposes. We can reduce the workload that goes into becoming regulatory compliant,” explains Hynes.
To illustrate the point, Hynes refers to one particular client who was able to reduce their middle- and back-office team by 60 per cent.
“That’s where you see the benefit of utilising an intelligent system that works in tandem with skilled staff,” Hynes concludes.
