The Future of Hedge Fund Operations: Managing a Distributed Team
Managers have overwhelmingly decided, whether through the experience of their teams being dispersed or through their increasing reliance on external service providers, that they can support much of their hedge fund operations and technology stack through efficient outsourcing.
The outsourcing option in the wake of COVID brings benefits, including reduced costs and more flexibility. The variable cost model approach can be essential for some hedge funds who want to stay competitive. Other firms are taking active measures to identify non-core activities that could be suitable for outsourcing.
However, this operational model presents new challenges. Managing in-house teams and service providers becomes an important skill.
Hedge funds need to adapt to stay competitive
Hedge fund operations are being forced to adapt to compete. But how do you ensure that your teams continue collaborating as effectively as they did when they were all housed under the same roof? Flexibility and a more intimate culture can prove a boon for smaller fund managers, but technology can also help.
It is not surprising that concerns over diminished team building emerged as one of the top consequences of the original lockdown. These were the findings in a KMPG/AIMA survey of 144 hedge fund managers globally. Over half the hedge fund managers interviewed—55%—pointed to this as a concern[1].
However, some other worries highlighted in the report point to fragmentation issues within hedge funds’ operational models that have emerged in the last six months. These include a lack of a robust computer environment, structure and routine, and concerns around decentralized supervision.
How to manage internal functions in the new reality
Smaller and emerging hedge funds launched in the last few years may already have embraced a heavily outsourced model. However, mid-sized hedge funds still grapple with how internal functions can be managed appropriately in this new environment.
The KPMG / AIMA report identified maintaining company culture, team building, and real-time collaboration as the most significant challenges within a remote/virtual environment. As hedge funds realise the technical limitations of their Business Continuity Plans (many designed to assist with breaks of literally only a few days out to a few weeks), more permanent solutions are now needed.
Outsourced enterprise-level technology provides a valuable pillar at the centre of your virtual portfolio management operation. It brings some considerable assets to the table, helping to reinforce your remote operations:
- Ensures reliable connectivity and data preservation, independently of a sometimes unpredictable local environment where your employees work
- Enhanced security access and permissions mean your fund does not need to trust employee security provisions blindly
- Web-based systems that can replicate the functionality of services and programs that, up until now, have operated on in-office servers and systems
- An established operational road map that can support remote supervision and assist with getting new staff up to speed without coming into the office
- An independently verified operational environment can assist with operational due diligence
One of the challenges that hedge funds face is how to assure new investors carrying out operational due diligence that they can continue to operate with integrity over the medium term in these conditions, even when investors cannot evaluate the fund’s whole operation at physical offices. Third-party validation from companies with the right sort of SOC audits will go a long way to achieving this.
How Truss Edge assists with hedge fund operations
At Truss Edge, we assist hedge fund operations by managing and operating complex virtual environments for their trading, portfolio management and data processing activities. Our clients come to us for complete or customized technology and middle and back office solutions because we evolved as a multi-strategy firm’s system development and operations team. We have the people and the expertise to manage complex or simple outsourcing projects, including improving connectivity with other service providers and interacting seamlessly with your proprietary trade management systems where they exist.
[1] Global Hedge Fund Industry: Accelerating Out of the Pandemic (2021 KPMG/AIMA)