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Manual risks in hedge fund trade processing

One of the key themes that emerged from our 2019 white paper on Hedge Fund Portfolio Management Systems was the problem of manual trade processing. Many start up and early stage funds will still rely on spreadsheets as a cheap way to process and report their trading activity. This stems partly from fund managers’ ongoing reliance on Excel spreadsheets to fulfil a variety of tasks, from costing their business to analyzing trades.

The problem with using spreadsheets to manage your middle office is that they can quickly become infected with manual data errors which will then be perpetuated across a range of other internal functions, from reporting to the regulator and investors, through to risk management tasks.

Hedge funds’ use of spread sheets

hedge fund managers use of spreadsheets

Our research demonstrated that small hedge funds are not always confident in the ability of their systems to support multi-prime relationships.

Our white paper garnered feedback from service providers and it was the fund administration community that also highlighted how they were seeing a high volume of errors coming through in the reporting of hedge funds. We found that roughly a third of managers are relying on fund administrators to catch trade breaks.

If fund managers are not relying on a dedicated team to capture trade breaks, then there is scope for a range of operational and pricing failures to occur.

Where are trade breaks first identified?

Where are trade breaks first identified

We already know that investors are paying unprecedented attention to new funds’ systems and the way they manage trading and reporting. Truss Edge is regularly consulted by investors and service providers on these very issues. We know that allocators have higher expectations than can be fulfilled by a spread sheet.

Hedge funds and spread sheets are not a match made in heaven. As COOs start fielding searching questions from allocators, they start to discover just how dimly many investors view the use of spread sheets to fulfil mission critical data processing and middle office tasks.

Here at Truss Edge we are now talking to many smaller managers about their operational needs. Investment in the right technology for your firm will save money and headaches over the medium term by avoiding the need to hire too many people to man your middle office functions and juggle those spread sheets in the first place.

We are finding smaller funds eating through valuable startup capital because they have already become too heavily invested in terms of middle office personnel. Our view is that an organic growth model, adopting the technology needed to automate processes as the need arises and as your business grows, is the best way forward.

There is still a misconception among many smaller hedge funds that technology investment for data processing is too expensive, but we find these same funds making numerous expensive hires to support manual processes that have been in place since they launched. Large and cumbersome middle offices are being created that don’t need to be there.

A leaner and more highly automated portfolio management operation can be achieved more cost effectively using software-as-a-service – and/or operations as a service – that have been properly certified and will meet the high due diligence standards investors now place on hedge fund software.

Download a copy of our Hedge Fund Portfolio Management Systems white paper here.

For a demo of our core Safari technology please contact:

Europe:

Thomas Byrne – thomas.byrne@trussedge.com

North America:

Andrew Brown – andrew.brown@trussedge.com

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