Daily Hedge Fund Reporting Improves Transparency and Investor Relations
A Connecticut-based independent hedge fund manager with more than $5 billion in assets, managing hedge funds, managed accounts, and proprietary vehicles, had needs driven by two aspects of its business:
- A multi-trader model, where each fund has several traders involved in daily trading activity Ė this required strategy-level reporting by aggregating data across the entire hedge fund complex
- Calculations of† investorsí account performance and fees based on a notional accounting basis (on top of providing net asset value (NAV) calculations)
With 15 prime brokers facilitating best execution in various markets and accommodating the needs of their traders, coupled with the added complexity to the fund accounting and administration process, it became clear that the limitations of its offshore administrator and its own infrastructure were creating roadblocks to its reporting and client service objectives. Specifically:
- The firmís administrator could not adequately handle the high trade volume (5,000† trades per day at the time) and the daily reporting required by its unique accounting requirements
- The use of a complex master-feeder fund structure involving multiple strategies required more nimbleness
- Its internal reporting system† was experiencing scalability problems in providing daily estimated NAVs for institutional clients
- An unmet desire to maintain independent administration to satisfy investor preferences
Customized approach, incorporating best practices
After conducting an extensive search among some of the largest outsourcing providers in the industry, the firm selected SEI due to its:
- Expertise with some of the most complicated structures and trading strategies in the market today, ranging from high frequency trading to multi-asset class long/short strategies.
- Ability to deliver a solution tailored to the clientís procedures and timelines. A dedicated service and operations team, comprised of members with a range of specialties, was exclusively focused on the clientís business. The client knew each member of the SEI team and had the option of dealing directly with each specialist as needed.
- Straight-through-processing environment incorporating automation, workflow processes, and controls spanning the middle and back office. This includes fund accounting, investment accounting, administration and investor servicing, as well as post-trade processing, position and cash reconciliation, performance measurement and reporting. This allowed the client to report consistently produced information to its investors on a daily basis and ultimately enhance the overall investor experience.
- Support for its volume of daily trader and investor activity, as well as future growth. At the time SEI was selected, the firm managed over 90 hedge funds, managed accounts and proprietary vehicles with over 1,000 investors.
- Extensive experience with large conversions, implementing comprehensive transition planning processes and integrating solutions for the most complex investment platforms in the industry.
Enhanced reporting for risk mitigation
The firm had a number of unique reporting requirements, which SEI was able to meet, including:
- A specific accounting methodology supporting the clientís preferred performance calculations
- Customized and fully-automated reconciliation process to accommodate the firmís use of futures brokers and requirements for total equity reconciliation
- Customized daily reporting processes to mitigate risk and process information for the clientís complex hedge fund strategies, including daily NAVs for management and investor reporting, daily P&L statements at the fund and security level, and daily reporting and status updates of account reconciliations
Positioned for future growth
With SEI as its partner, the firm gained a scalable independent infrastructure that positions it for future growth. To date, it has experienced these benefits:
- Reduced processing time, making daily investor reporting available earlier in the day
- Reduced costs, with the elimination of its internal accounting system
- A higher trading volume without disruptions to its business. Far surpassing its previous benchmark, the firm now reaches peaks of over 100,000 trades per day
- Increased independence of the operational and valuation process, which has helped better position the firm to accommodate future regulation and increased investor scrutiny
- Attraction of new institutional investors who prefer an operational environment managed through an independent outsourcing partner