By: Stephanie Miller
Hedge funds want to simplify their operating model and create a more sophisticated and joined-up approach to middle- and back-office outsourcing. Managing multiple technology provider relationships can be complex and expensive, particularly as managers move towards esoteric or illiquid products. How can firms work to overcome this? Either outsource all your middle- and back-office duties to one provider, or establish a co-sourced relationship. Outsourced or co-sourced relationships leave the middle- and back-office details to others so managers can focus on keeping their clients happy.
Service providers have the infrastructure and resources to continually invest in their technology and evolve as regulations change. This allows for more straightforward compliance and reporting. Firms with excellent data warehousing abilities either possess the data in question or can collect it from multiple counterparties, and aggregate and tailor it according to the client’s regulatory or investor reporting obligations. In addition, service providers have experience collecting data for Form PF, Annex IV, and FATCA tax transparency. Moving forward, service providers will adjust their processes to accommodate for new rules like the Markets in Financial Instruments Directive II (MiFID II), which introduces transaction reporting and pre- and post-trade transparency for investment funds.
Financial technology is evolving. Service providers who are technology-centric find it easier to build or upgrade their systems to account for these changes, and clients want those service providers that embrace disruption. Disruptive technology impacts many business areas. For example, the increased digitization of investor subscriptions and redemptions introduces much-needed automation to this once highly-manual process. Firms look for service providers who are innovative and forward-thinking in their approach towards new technology and potential disruptors.
Fund managers are increasingly outsourcing and co-sourcing to save money. For best results, it’s key to choose service providers who have a holistic view of your data and a proactive approach to technological disruption. Fund managers must choose wisely – they are responsible for appointing their outsourced provider and they will be held accountable should problems arise, a point routinely made by regulators (e.g. the Financial Conduct Authority [FCA]).
SS&C is one of the leading fund administrators for both onshore and offshore hedge funds. We leverage proprietary technology and expertise to deliver outsourcing services to meet your business objectives.