Efficiency and flexibility top agenda

How will technology requirements change over the next 12–24 months?

While the economic outlook may not be favourable, fund administrators are considering how much spending is needed to automate processes and increase frequency and reliability. Many are considering their options if expected additional regulation is imposed on the industry.

One of the advantages of developing and maintaining a proprietary hedge fund technology platform, says Deborah Yamin at State Street, is that the company can be responsive to changing requirements from clients rather than waiting for an upgrade from a third-party vendor. “In supporting new investment strategies or products, for example, our operations specialists have the flexibility and expertise to quickly adapt technology functionality for straight-through processing,” she notes.

“Technology is key both for use within an administrator’s operation for outsourcing efficiency and for the delivery of transparency to investors,” says David Aldrich at Bank of New York Mellon, adding that the investment required to keep up with the pace “will challenge those without strong balance sheets behind them.”

Over the next 12–24 months, Andrew Rogers at Gemini expects to see a greater integration of services on one technology platform. “Funds will want to see all solutions integrated on a single solution. They will have additional reporting requirements as the demand from investors for these solutions will increase as the funds will required to be more transparent in the future,” he notes.

“Increased automation to support the daily environment will become more prevalent with new products being made available to allow investors transparency and access to frequent valuation,” says Don McClean at UBS.

Jack McDonald at Conifer believes fund administrators must “anticipate the technology requirements necessary to evolve with new financial instruments. While the instruments seem to get increasingly more complex, there is also pressure to report final net asset values [NAVs] faster. The portfolio accounting system is the backbone of the middle and back office and will have to support these requirements.”

Not all administrators and technology are equal when it comes to their capability to value and account for complex instruments, notes José Santamaria at RBC Dexia.  Although most third-party administrators can reliably administer exchange-traded and liquid instruments, he says the technology platforms required to service long/short funds are now widely deployed with administration delivered by experienced fund accountants.

Leveraging technology to automate manual processes will be critical for administrators to maintain profitability and strong margins, says Matthew Wilson at Citadel. His company leverages proprietary technology that allows its customers to trade any asset class, in any geography with any volume.

Ian Headon says Northern Trust is planning technology investment to facilitate the automation of currently manual processes and to help the company service clients in areas like front-office risk reporting.

At Butterfield Fulcrum, Akshaya Bhargava expects clients to push for real-time access to information and straight-through processing. “Clients will expect fully interactive, ready access to reports for data manipulation, allowing them to drill down into different aspects of their investments,” he says.

As investment strategies are increasingly converging, John Alshefski at SEI sees a continued focus on automation and improved technology to handle hybrid and more complex strategies. “Due diligence will play a much larger role as institutional investors continue to grow their allocations to alternatives,” he forecasts.

Technology will continue to evolve at a rapid pace over the next 12–24 months, says John McCann at Trinity Fund Administration. “There will be greater demands towards real-time systems, to greater frequency of valuations, to middle office servicing that will demand technological automation in terms of portfolio analysis and risk reporting,” McCann reports.

“Technology will be required to deliver services, systems and reports that increase data transparency, integrate data from multiple sources, provide fund managers with real-time information and execution, flexibility and speed,” says Hans Hufschmid at GlobeOp.

Taking a different view, Joseph Truelove at Kleinwort Benson expects technology requirements to reduce. “There will probably be less cash around to invest in systems enhancements in businesses generally. I also expect managers to be less adventurous in the complexity of transactions in order to provide investors made suspicious of hedge funds with greater transparency,” he says.