By Chris DeNigris, Global Marketing Manager, Backstop Solutions Group
Twenty-seven percent of managers have plans for a new launch this year, according to Preqin’s 2015 Global Hedge Fund Report. Whether those managers are launching a new fund or a new product, they’re dealing with stiffer competition for assets and increased requirements from investors.
As you prepare for a new launch, now is the time to take a step back and review the fund’s operational framework. Setting up the fund for success amidst today’s challenges means having the right business processes in place to increase efficiency, better engage investors, drive top line performance and prepare for regulatory requirements.
Ask yourself these four questions to determine if the processes you have in place are allowing the fund to achieve optimal efficiency or if it might be time to rethink your infrastructure.
Are we effectively maintaining our data?
Keeping up with investor and regulatory demands requires that you have a system in place to store all of your investor data. This includes financial data, as well as other activity, such as records of all communications – including emails, calls, meetings, notes and documents – over your entire history with each investor.
As the fund ramps up, reporting will inevitably begin to take more time, especially when your investor base grows or becomes co-mingled within the fund. Having all investor information stored in a central location is critical for data management, and the system you have in place should allow you to easily search, gather, sort and present the data.
Ask yourself: “Can our solution generate summaries of an investor’s history with the fund at the click of a button? Does it integrate with Excel to present visual representations of our data? Do we have the ability to automatically capture emails or to mass upload documents?” If that functionality doesn’t exist within the system you’re using, you run the risk of having a useless repository of data, which can mean harsh time, monetary and reputation costs for the fund.
Funds that leverage a patchwork of systems such as shared folders, Outlook and Excel, have difficulty quickly searching through all of their investor activity at once. One person could spend hours tracking down any given piece of communication. For example, say a firm has 10 employees on their IR team, and each of those people spends 20 minutes per day searching through investor activity to find information they need. That’s 200 minutes per day spent researching activity, which adds up to 800 wasted hours per year. With a proper system in place, that time spent on activity management can be streamlined by up to 50 percent.
How much are we spending on outsourcing our operations – could we be doing more with less?
When designing their operations, some firms choose to use “best of breed” providers to outsource various functions across their organization. However, using one solution for CRM, another for research management, a third for portfolio management, and possibly even one or two more, can become quite costly and can also limit collaboration among teams internally.
To combat these issues, there’s been an industry trend toward streamlining operations and leveraging fewer systems that can work to consolidate efforts across the business. COOs are looking at their systems to see where there is functionality overlap and then replacing redundant systems with consolidated platforms. With a consolidated system in place, a fund could use one platform for all their CRM, IR, research, analytics and reporting needs. This approach centralizes operations, fosters collaboration between teams and saves costs.
For example, one of Backstop’s clients implemented our platform to replace four of the five systems that they used for research management, portfolio management and relationship management, and they saved nearly $90,000 annually in software costs.
Are we leveraging opportunities for co-sourcing?
With the rise of vertical cloud solutions, funds today have more opportunities to “co-source,” rather than out-source, their operations. With a “co-sourcing” model, funds are working with their service providers to implement industry best practices, integrate with other leading industry providers and stay on top of new demands.
Vertical clouds are purpose-built to solve the problems of the industry they serve, and their teams have years of relevant industry experience to help clients drive productivity and achieve key objectives. Within the hedge fund industry, vertical cloud providers offer you a number of opportunities for co-sourcing that could include seamlessly pulling in files from your admin, anticipating tracking needs for new regulations like FATCA or Form PF, or offering a web portal for secure communication with your investors.
Moreover, with the co-sourcing model, you’ll still maintain control over your operations, so you never run the risk of losing touch with your end investors.
What’s the cost of doing nothing?
You might be well aware that the infrastructure you have in place isn’t meeting all your needs. However, you fear that implementing a new provider or process now will cost too much of your time and resources. You could plan on continuing to operate with the framework you currently have in place, but have you thought about what that might cost you in the long run?
With a new launch, you have the opportunity for a data “reset.” There’s no historical data, giving you the ability to put the right processes in place from day one. If you wait to implement a new infrastructure months or years down the road, you’re diminishing the value you’ll gain from the system. By waiting, you’re creating a need to spend even more time, money and resources to migrate historical data.
It’s also important to realize that improving operational infrastructure by consolidating platforms or implementing “co-sourced” solutions can be a rather painless process. Being diligent about reviewing a provider’s teams and experience beforehand can help ensure a smooth implementation process. Again, with the rise of vertical cloud offerings, many providers have years of experience implementing solutions for this industry.
Asking yourself these questions will help you gauge the effectiveness of your operational infrastructure. If you aren’t confident in the answers, it’s time to look at making a change.
SEC Puts Managed Accounts On Its Agenda (Jan 2015)