Risk Management

04:28 PM
Connect Directly
Facebook
Google+
Twitter
RSS
E-Mail
50%
50%

Funds Look to Liquidity Management Tools For Competitive Edge

Ledgex launches liquidity management and reporting tool for fund of fund and institutional managers.

Following 2008 investors became savvier about liquidity options. Prior to the financial crash it had been commonplace to have two year lockups on hedge fund investments but now investors expect, even demand, a more frequent schedule. Annual lockups have come down to quarterly, in some cases monthly. For the funds of funds and institutional investors managing portfolios, it has become something of a risk and liquidity headache.

Liquidity risk is the ability to match investor liquidity with the underlying manager liquidity. If you allow investors to redeem more, then managers must have that liquidity available. "That liquidity risk, or matching, is a struggle for every one of our clients." says Ledgex Systems managing director Brian Macallister. Ledgex is a provider of portfolio management solutions for fund of funds and multi-fund managers.

"If your investor liquidity does not match portfolio liquidity there is a risk that investors could redeem more than you have available." To be competitive managers are trying to understand how much liquidity they have and provide optimal liquidity to investors. "It's a competitive space. Firms are trying to offer investors more frequent liquidity offerings… Some are starting to offer monthly liquidity with certain limits, but investors don't even want limits," Macallister adds.

[For more on industry changes, read: HWhere are the Technologists' Voices in Global Financial Reform?]

Managers find significant value in identifying where the money is, and when they can and cannot redeem it. Firms want to know, if I add X manager to the portfolio, what would be the new liquidity risk? What does this do to our liquidity risk on the investor side?

Firms are also offering up individual investment liquidity, mirroring requests of incoming investors. For firms with multiple clients and 60+ funds in a portfolio, each with their own liquidity terms, this can be tricky to equate and report without the proper tools.

Tuesday morning Ledgex publicly announced the launch of a new liquidity manager and research modules on their portfolio management platform. The liquidity manager will give firms "real-time visibility into their existing and proposed portfolio liquidity options while providing the research and analytics that support the manager selection process," according to the press release.

"Increasingly complex fund and investment structures combined with changing regulations have dramatically shifted the liquidity and portfolio management requirements of fund of funds, institutional investors and other multi-fund managers," said Macallister in the release. "Ledgex addresses this new paradigm by delivering a single, comprehensive platform for portfolio management, liquidity management, manager research and investor relationship management." Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Greg MacSweeney
50%
50%
Greg MacSweeney,
User Rank: Apprentice
12/10/2013 | 5:18:15 PM
re: Funds Look to Liquidity Management Tools For Competitive Edge
The 2-year lockup period is antiquated, but that is really the least of most funds' problems. Many investors are turning away from actively managed funds completely, since they rarely show better performance than index funds (which are cheaper).
IvySchmerken
50%
50%
IvySchmerken,
User Rank: Author
12/10/2013 | 3:38:09 PM
re: Funds Look to Liquidity Management Tools For Competitive Edge
Investors must have rebelled against the two-year lock up periods of hedge funds. I wasn't aware that hedge funds are offering lockups that open up on a quarterly and monthly basis. This must be wreaking havoc with their investment strategies if investor redemption requests are occurring so often and portfolio managers need to find the liquidity in complex investment structures. Tools like Ledgex are giving multi-fund mangers transparency into their underlying hedge fund holdings. Still, matching the liquidity needs of investors with the liquidity of 60 underlying portfolios must be challenging.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - July 2014
In addition to regular audits, the SEC will start to scrutinize the cyber-security preparedness of market participants.
Video
Inside Abel Noser's Trading Floor
Inside Abel Noser's Trading Floor
Advanced Trading takes you on an exclusive tour of Abel Noser's New York trading floor, where the agency broker known for transaction cost analysis, is customizing algorithms for the buy side, while growing its fixed income trading and transitions business.