Learning to Navigate a New Landscape
The hedge fund industry is evolving faster than ever. Here, in this final installment in our four-part Q&A series, Ron Tannenbaum, SS&C managing director of business development for Europe, Middle East, and Africa, discusses today’s trends and how SS&C GlobeOp is well positioned to help hedge funds navigate the new landscape.
Moving forward, what trends are you seeing emerge in the hedge fund industry?
Hedge funds are evolving by migrating into other asset classes that share more characteristics with direct lending and private equity. There is a trend of hedge funds moving towards illiquid assets such as corporate debt, corporate distressed debt, and loans.
With this move towards illiquid assets comes increased risk to the industry. In 2007 and 2008, a number of hedge funds had to suspend redemptions due to liquidity mismatches whereby they granted liquidity terms that were not consistent with the underlying liquidity profile of the portfolio assets. The hedge fund industry has mostly learned from those mistakes, and managers provide the appropriate liquidity profiles for the underlying assets they may hold.
Hedge funds are facing challenges and in today’s market, these are only going to grow. The introduction of Basel III will certainly ramp up the costs of financing and prime brokerage, and this is just one potential problem.
How well positioned is SS&C GlobeOp to help hedge funds navigate the industry changes?
Running a fund management firm is a tough business. The operational challenges – such as the reporting – are difficult and time-consuming. Finding investors and raising assets is hard to say the least. But these can be managed in a cost effective way. Keeping in-house operations costs to the minimum can be achieved through sensible outsourcing to high-quality providers. Having a streamlined middle and back office supported by a best-of-breed outsourced provider will help enable hedge funds to flourish in this tough regulatory and low return environment.
SS&C GlobeOp is the premier service provider for supporting operations on direct lending portfolios. Our support of loans delivered organically within our complete, seamless platform puts us well ahead of the competition. SS&C GlobeOp’s ability to service Level 3 assets is also a major advantage as hedge fund strategies evolve.
Read the other three parts in our series, The Evolution of Hedge Fund Administration.