In response to the financial crisis hedge fund managers are enacting a series of operational changes to reduce risk and enhance their ability to attract investors, according to a recent study.
The study sponsored by Omgeo and conducted by Greenwich Associates, a leading research-based consulting firm in institutional financial services, found that hedge fund managers are starting to automate key processes such as reconciliation, cash management, collateral management and pricing.
The study examined the operational practices of over 50 hedge funds with assets over $1 billion (USD) in North America, Europe and Asia. Approximately 70 percent of the hedge fund managers participating in the study say they have altered their operations to reduce counterparty risk. Among the steps take by these managers were revising policies and control, increasing cash accounts and adding prime brokers. Almost 60 percent of managers have increased the number of prime brokers with whom they work — a move that virtually all the managers say is intended to reduce counterparty risk. Managers based in Asia were especially likely to have increased their number of prime broker, with 78 percent noting an increase. At the same time, about 40 percent of the managers have taken steps to improve reporting and increase transparency for investors, and about one-third have started to obtain more independent valuations and accounting.
More than two-thirds of the hedge funds participating in the survey believe that operational improvements and automation have a direct and positive impact on their ability to attract investors and assets. “Better routines and work practices have helped us provide transparency to our clients, which gives investors additional confidence in us,” stated one North American manager, according to the release summarizing the study.
In a statement, Andrew McCollum, consultant at Greenwich Associates, said, “The events of last year have illustrated the direct link between operational improvements and hedge funds’ ability to attract and retain assets from investors. There’s a real change of behavior going on, the days in which investors would entrust their money to the black box of a skilled hedge fund manager are over,” commented McCollum. “In the post-crisis marketplace, investors are demanding not only transparency, but also sophisticated operational processes and infrastructures capable of managing the types of risks they’ve experienced over the past 18 months,” he said.
Omgeo and Greenwich Associates will host Webinars on February 24th and 25th discussing survey results with the global hedge fund community. Information is available at www.omgeo.com/hfwebcast. A white paper highlighting the results of the survey can be downloaded at www. omgeo.com/hedgefunds.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio