Less than a month has passed since the Securities and Exchange Commission's (SEC) controversial hedge fund ruling. In a 3-to-2 vote on Oct. 26, the SEC adopted Rule 203 (b)(3)-2 and related amendments requiring hedge fund managers to register as investment advisers under the Investment Advisers Act of 1940. Although managers have until Feb. 1, 2006, to comply with the rule, firms like New York-based Alliance Capital Management (ACM) are already looking to leverage existing technology to help lessen the impact of the new regulation.
As registered investment advisers, hedge fund managers will need to adopt basic compliance controls, improve their disclosures to investors and open their doors to the Commission for periodic audits. This necessitates a streamlining and automation of data management processes on the part of hedge fund managers.
While ACM initially implemented FundStation by Pittsburgh, Penn.-based Confluence in August 1996 as a rate of returns engine for its retail product line, Bob De Lucia, assistant vice president for mutual fund accounting at AllianceBernstein, says that he sees expanded use for the platform in relation to hedge funds. ACM currently uses FundStation for the internal reporting needs of a wide range of products. "We consider ourselves mutual fund accounting, but we have all different kinds of products underneath us -- partnerships, structured products, hedge funds. We need to be able to get into the database of all of our products and feed that to our corporate accounting group for the collecting of assets under management," he explains. The firm primarily uses the platform to report performance and shareholder activity back to senior management and the portfolio management team. "We use FundStation for our retail product lines, which have the same SEC requirements [as hedge funds]," adds De Lucia. "FundStation would definitely help assist in complying with the rule."
ACM is also looking to Confluence for other hedge fund projects. "Hedge funds that are structured domestically are structured underneath a partnership, and they do not do unitized value," says De Lucia. The firm is currently in discussions with the vendor to develop a system that can handle these types of products. "We're interested in a system that can calculate performance off of what would be considered total market value or portfolio value," he continues. Time will tell if Confluence can deliver.