The following article is part of our Hedge Fund Insiders Article Series and was contributed by Meyler Capital. Read more articles from the Series HERE.
So, I'm talking to a friend from the UK the other day when we stumble onto the topic of sports. Every time the word, “football” crosses my lips, he visibly cringes. “Football? You mean that game that you play with your hands? Tell me, JD, how often during a football game does anyone but the kicker actually ever touch the ball with his foot?
Yeah – this argument is not new...football will always mean something different to Americans than everyone else in the world. But it made me wonder the same thing about our business.
Why is it that capital placement agents refer to themselves as "Third Party Marketers"? Does this mean something different to people in these roles than it should to everyone else?
Let's call a spade a spade – there is about as much marketing happening in this industry as “footballing” in the American sport. Sure – there is lots of relationship management happening and certainly plenty of overt selling. But marketing? Not really…
The following article is part of our Hedge Fund Insiders Article Series and was contributed by Wells Fargo Prime Services. Read more articles from the Series HERE.
All business relationships are driven by the belief that both sides will receive a mutual benefit that will allow for a long term sustainable partnership between the firms. For a prime brokerage /alternative asset manager relationship this principle is no different. An alternative asset manager (“AAM”) looks for certain services from its prime broker (“PB”): financing, access to balance sheet, securities lending, Capital Introduction, research, Corporate Access, technology and other services that are essential to the AAM as it deploys its strategy. PBs are looking to generate an attractive after cost return based on the revenue generated from the client vs. usage of financial resources such as balance sheet and capital.
Driven primarily by post financial crisis regulatory pressures, banks and prime brokers are being faced with significant new requirements, which has changed the client interaction dynamic and has led to changes in balance sheet strategy, business objectives, and capital markets activity. While the fundamental nature of the business relationship has not changed between hedge funds and prime brokers, AAMs need to understand the impact of regulation on prime brokers and how best to optimize their impact on the prime brokers balance sheet in order to optimize the overall relationship.
While Basel III is the primary driver of this change, perhaps the most significant shift in the PB model has been the introduction of the return on assets “(ROA”) metric on a pre-tax basis as opposed to the pure top line revenue that previously drove the business. In summary, a balance sheet denominator has been added to the revenue numerator creating an ROA equation that now determines the health of a prime brokerage relationship. To be most effective, funds should understand how to minimize the balance sheet denominator as well as their impact on other relevant metrics:
Liquidity Coverage Ratio (LCR)
Net stable funding ration (NSFR)
Tier 1 capital ratio
High-Quality Liquid Assets (HQLA)
In the context of information technology, social engineering refers to the act of tricking people into divulging confidential or sensitive business information, and breaking security policies. This form of attack infiltrates companies by targeting their weakest access point, which predominantly is a firm’s employees.
The Art of the Phishing Con
Let’s examine a popular technique for social engineering known as phishing. In a phishing scheme, the hacker broadly disseminates a fraudulent email with aim to acquire sensitive data, such as, login credentials, IT resources or banking information. The message may request the recipient to submit personal information or to click on a link embedded with malware. Although this approach rarely dupes sophisticated users, a distracted employee could make one mistake and compromise a firm’s entire network.
Written by Ledgex Systems, the following article originally appeared in the Canadian Hedgewatch under the title, "2015 Trends: Investor-centric Approaches for Hedge Fund Growth."
Winning Hedge Fund Strategies
In today's competitive market, winning investor assets is no easy feat. Hedge funds must be nimble and meet increasing investor and regulatory demands, while remaining cost efficient and advancing operations. To foster and sustain these relationships, it’s vital that managers and investors reach equilibrium in regards to their interests and expectations.
Achieving this balance is an ongoing challenge; however, it also offers firms opportunities for improvement. The following are suggested focus areas for hedge funds to differentiate themselves from the competition and attract and retain investors.
Bespoke Fund Productization
Managers that strive to enhance offerings consistently to attract principal growth must focus on investors’ needs during product ideation and development. Aside from exceptional client service, investors expect high performance, availability, transparency and seamless integration with client relationship management data. Hedge funds that invest in building bespoke solutions suitable for investor operations will meet expectancies better while increasing efficiencies and reducing the risk of underperformance.
If communicating to your employees, investors, vendors, and partners is important on a daily basis, then ensuring effective communication during a disaster or disruption should be a priority, too. There are many reasons why it may be advantageous for a firm to consider utilizing an Emergency Notification System (ENS) in order to ensure that internal and external parties are kept informed and updated. Traditional calling trees are cumbersome and time consuming, and emails -- especially outside of business hours -- can often be overlooked. Today, notifications systems can quickly and effectively send messages using a variety of delivery methods. It’s no wonder many companies large and small are moving to these kinds of systems. However, finding the right system requires some thought and planning. This article will cover some items firms may want to consider when shopping for a notification system.
Does the system require on site hardware or is it hosted online or a hybrid of the two?
On Site: This option is rarely utilized, and it means that hardware/software will have to be added locally to the firm’s infrastructure to sync up with the system. Depending on the current IT set up, firms may want to discuss this option with their IT administrator or provider to ensure it is feasible. This option can be vulnerable if there are local issues affecting the firm’s office because it will most likely also affect the notification system.
In Part 1 of the SEC's recent cybersecurity guidance update, the regulatory body highlighted the need for cyber risk assessments across multiple areas of a registered firm's organization. Continuing to address how firms should prepare for security incidents before they occur, Part 2 of the SEC's guidance update focuses on how hedge funds and registered investment advisers should prevent, detect and respond to security incidents.
Take a look at the latest installment of our video series or scroll down to read a brief recap.
Categorized under: Security Launching A Hedge Fund Cloud Computing Disaster Recovery Hedge Fund Due Diligence Hedge Fund Operations Hedge Fund Regulation Infrastructure Communications Outsourcing Business Continuity Planning Trends We're Seeing Videos And Infographics
If you missed our 'Starting a Hedge Fund' webinar last week, you missed a lot. Luckily, our webinar replay is available here, and we're now onto Part Two of our recap. If you missed Part One - which focused on the structural and formation basics of starting a new hedge fund - click here. In Part Two, we're recapping what our very own Managing Director Vinod Paul covered, specifically around IT infrastructure decision-making, cybersecurity protections and common technology mistakes.
2015 Technology Priorities
Before looking at the specific technology infrastructure components emerging managers should consider before and during the launch phase, let's first cover some large-scale IT priorities for startups in 2015. We've identified three major priorities:
Selecting the right service providers. Whether it's outsourcing IT, administration or another critical function, it's imperative for startups (and successful hedge funds in general) to conduct proper due diligence and forge partnerships with providers that offer flexibility and accountability.
Understanding your firm's vulnerabilities and exposures. Security, security, security. It's the most critical area of focus for hedge funds in 2015. Firms should understand what risks could affect their businesses and the safeguards in place to mitigate those risks.
Employing an infrastructure your firm can grow with. You're a startup, yes. But you can't afford to act like a startup, at least when it comes to your technology. Selecting an infrastructure platform and provider that can grow with your firm and support you 2, 5, 10 years down the road is critical to your success, and will save you money and headaches in the long run.
Categorized under: Launching A Hedge Fund Cloud Computing Disaster Recovery Security Hedge Fund Due Diligence Hedge Fund Operations Hedge Fund Regulation Infrastructure Communications Outsourcing Business Continuity Planning Trends We're Seeing Videos And Infographics
Yesterday, we hosted a hedge fund launch webinar called “A Checklist for Starting a Hedge Fund in 2015,” which focused on structure and strategy considerations for hedge fund startups as well as focus areas for your technology infrastructure and cybersecurity systems. Marni Pankin, partner at Marcum LLP, and Vinod Paul, managing director at Eze Castle Integration, shared their expert knowledge on what they consider to be the top priorities for hedge fund startups in 2015.
Pankin started with a checklist of her own, including what an emerging manager should look for when launching a new hedge fund. Below is a brief summary of her checklist and be sure to read our second article, "Starting a Hedge Fund: Your IT and Cybersecurity Checklist" here.
Categorized under: Launching A Hedge Fund Cloud Computing Disaster Recovery Security Hedge Fund Due Diligence Hedge Fund Operations Hedge Fund Regulation Infrastructure Communications Outsourcing Business Continuity Planning Trends We're Seeing
Despite the recent strides hedge funds have made to improve cybersecurity policies and safeguards, studies reveal that a less-heralded group is responsible for the majority of successful cyber-attacks. Flying under the radar and opening the malware floodgates with one click of a spoof email are employees ill-informed of cyber threats and potential risks.
Unbeknownst to the employee, upon release of their mouse they have guided hacktivists into his or her company’s network, exposing business critical information, financial records and passwords. And that’s just the beginning. The quantity and severity of subsequent damages are limitless, but so is the opportunity for improvement in the firm’s case.
What happens when it’s not a drill? What will employees in the office do after hearing an announcement or alarm due to an incident? Quickly make their way to the stairs or ignore it and continue working?
In critical situations, time matters. If everyone delays evacuating to make sure it’s the “real thing” or just completely ignores the warning, they can potentially put themselves in serious jeopardy. At home or at work, fire alarms go off from time to time. Unfortunately, responses to such alarms can range from grabbing a fire extinguisher to fuse the situation to putting on ear plugs and continuing with your workday. Inadequate responses to a fire alarm, for example, can put yourself, coworkers, and even first responders at risk. Fines can also be assessed to a firm by agencies such as OSHA or the local fire municipality if employees fail to evacuate in a timely manner.
A recent report from the National Fire and Protection Agency (NFPA) estimated that in 2013 alone there were 487,500 structure fires, causing 2,855 civilian deaths and 14,075 injuries. Below are four areas of importance that firms should focus on during these types of scenarios to ensure their employees and businesses are not negatively impacted.