Hedge funds and remote working: an opportunity to revisit your operations?

As the COVID pandemic continues into its tenth month in some parts of the world, many hedge funds are facing the prospect of keeping their staff dispersed across multiple locations, the bulk of them working from home, through the harsh winter months.

What was originally intended to be a temporary inconvenience is now starting to look like a longer term challenge. Yet operational requirements and investment demands are showing no let up. The technical obstacles involved – for example with operational due diligence – remain considerable.

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 operations and technology stack through efficient use of outsourcing.

The outsourcing option under COVID brings benefits with it, 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 which could be suitable for outsourcing.

Either way, if you are a hedge fund facing further months ahead with employees struggling to keep your operation running properly, now is the time to address it. Mistakes can be expensive.

Hedge funds need to adapt to stay competitive

Hedge funds are being forced to adapt in order to compete. But how do you ensure that your teams continue to collaborate as effectively as they did when they were all housed under the same roof? For smaller fund managers, flexibility and a more intimate culture can prove a boon during these trying times, but technology can also help.

It is not surprising to see concerns over diminished team building emerging as one of the top consequences of the lockdown: these were the findings in a recent KMPG/AIMA survey of 144 hedge fund managers globally. Over half the hedge fund managers interviewed – 55% – pointed to this as a concern[1].

But some of the other concerns highlighted in the report all point to issues of fragmentation within the operational model of hedge funds that have obviously emerged in the last six months. This includes a lack of a robust computer environment, a lack of structure and routine, and concerns around decentralized supervision.

How to manage internal functions in the new reality

Smaller and emerging hedge funds which launched in the last couple of years – and were still in growth mode as the first wave of the pandemic hit – may already have embraced a heavily outsourced model, but mid-sized hedge funds may be grappling with how internal functions can be properly managed in this new environment.

The KPMG / AIMA report identified outsourcing of administration services as one of the key areas identified by hedge funds as operable within a remote / virtual environment. As hedge funds begin to realise the technical limitations of their Business Continuity Provisions (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 can provide a valuable pillar at the center of your virtual portfolio management operation. It can bring some considerable assets to the table, helping to reinforce your remote operations:

  • Ensure reliable connectivity and data preservation, independently of a sometimes unpredictable local environment where your employees work
  • Enhanced security access and permissions means that your fund does not need to blindly trust employee security provisions
  • Web-based systems that can replicate the functionality of services and programs that up until now have operated on in-office servers and systems
  • Established operational road map that can support remote supervision and assist with getting new staff up to speed without coming into the office
  • Independently verified operational environment can assist with operational due diligence

One of the new challenges that hedge funds may be starting to 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 come to visit their 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 remote operations

At Truss Edge we assist hedge funds with managing and operating complex virtual environments for their trading, portfolio management and data processing activities. Our clients come to us for full or customized technology and middle and back office solutions because we evolved as the system development and operations team of a multi-strategy firm.  We have the people and the expertise which will allow us 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] Agile and resilient: alternative investments embrace the new reality (2020 KPMG/AIMA)

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