Transparency top priority for 2009

How do you think transparency and risk reports will develop? What will investors want in the short, medium and long term? How will their needs change? Aside from institutional investors, what other factors will influence these reports in the future?

We see a major shift towards more transparency, declares John McCann at Trinity Fund Administration. “Investors have focused more on investment returns than on business basics,” he says.

More funds will provide transparency and risk reports to investors, agrees Andrew Rogers at Gemini Fund Services. This will happen as investors require additional disclosure from the funds in which they invest.

“The challenge,” points out Don McClean at UBS, “is to offer a flexible and tailored service to meet clients’ requirements. What clients are increasingly looking for is to invest in vehicles where they understand the product/structure, the investment approach and how the strategy is executed. Given recent events, clients are likely to seek this level of comfort even more.”

We see an increase in client interest in attribution and exposure reporting, confirms Jack McDonald, at Conifer. “Investors will likely want more transparency, broader reporting and abbreviated due dates. Risk management will also increase in usage,” he notes.

“There will be a greater demand for risk reporting and transparency around reconciliations and pricing,” says José Santamaria at RBC Dexia. “What remains to be seen is how timely or thoroughly the investor will review and question these issues as opposed to continuing to focus mainly on the market valuation reports.”

David Aldrich at Bank of New York Mellon thinks reporting capability has reached new levels of transparency. “It is now possible, using a service such as Investor Analytics, for investors to have direct access to third-party risk reporting tailored to their precise needs,” he concludes.

In the short term, investors will expect NAV calculations from an independent administrator, at the very least, as a prerequisite for investing with a hedge fund manager, says Maria Cantillon at BNP Paribas Securities Services.

“In the medium to longer term, investors will expect an independent provider to calculate the risk and performance data that many hedge fund managers now make available to their top-tier investors. The most accurate source of data for these reports is the official books and records of the fund, maintained by the independent administrator,” she notes.

A major challenge for hedge fund managers will be finding a way to increase disclosure without compromising proprietary trading advantages, believes Deborah Yamin at State Street. “There will likely be increased demand for investor reporting from hedge funds to be delivered by a third-party provider such as an administrator,” she notes.

Matthew Wilson at Citadel believes investors will continue to request increased transparency in their underlying fund managers. “We believe that aggregated position reporting providing information on exposure to certain asset classes and sectors will be a common request,” he says.

Investors will continue to want information faster and in as clear a format as possible, believes Ian Headon at Northern Trust. “To meet the greater reporting challenges, outsourcing firms should have a focus on providing tools that help both fund managers and their investors monitor performance and assess risk,” he advises.

Transparency will be the buzz-word for 2009, foresees Akshaya Bhargava at Butterfield Fulcrum. “The ability of administrators to provide transparency and risk reporting will become a key differentiator. Risk systems will change from value-at-risk models to what-if, more futuristic approaches,” he forecasts.

Fortis’s Charlie Woolnough says transparency and risk reports will only develop with the frequency and detail that fund managers are willing to provide. “There has clearly been a change in the balance of power between investors and fund managers over recent months, which have seen investors now being able to dictate the terms of their investment to a much greater extent,” he concludes.

In the short term, investors will want independent proof and documentation of basic fund facts – for example, that assets exist, positions are true and cash reported is real, opines Hans Hufschmid at GlobeOp. “Self-administration is now fading as an acceptable practice for most investors so those funds, many of them well established and successful, will need to move quickly to secure independent verification by working with independent administrators,” he says.

At Valletta Fund Services, Kenneth Farrugia says investors will want assurances that the investment policy adopted by the fund manager is commensurate with the risk profile of the investors. “Increased risk disclosures are required to ensure that investors are fully aware of the risk/reward relationship of the investment strategy being adopted,” he says.