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Can an Alternative Strategy Investor Know the Valuation Given is Correct?

By Daniel Johnson, of Wells Fargo Global Fund Services, and Eric Lazear, of FQS Capital Partners,
Thursday, April 24th, 2014

The following article is part of our Emerging Managers Insight Article Series and was contributed by Wells Fargo Global Fund Services. Read more articles from the Series HERE.

Hedge Fund Managers Article SeriesTraditionally, for most investors, the main concern when investing in a hedge or private equity fund was whether the manager could generate a sufficient level of return for an acceptable level of investment risk.

But operational matters have increased in importance and operational due diligence has now evolved to the point that many investors will reconsider an investment on operational grounds alone, regardless of the return profile.

Operational risk can take many forms, but valuation is a good place for investors’ initial focus: are the holdings of the fund accurately valued, and is there a process in place to ensure that they are accurately valued at each dealing period?

Valuation risk is particularly critical for more complex strategies, such as structured credit, where the risk of pricing irregularities is significantly higher. However, it is also important to review and understand pricing policies and procedures for strategies that trade listed securities. For example, it is useful to know whether the manager marks their equity longs at the bid, mid or close and, if it is the mid, if the manager determines the impact on the portfolio if priced at the bid.It is also important to understand if adjustments are made for large positions, less liquid holdings, or for securities that trade less frequently.

How the holdings of a fund are valued is important for many reasons: it drives the net asset value (NAV); it sets the price for subscriptions and redemptions; and it determines the level of performance fees. While this point may be obvious for most investors, many investors are often unsure of what detailed valuation related questions to ask the manager and, equally as important, the administrator who is responsible for producing the NAV.

Categorized under: Launching A Hedge Fund 



SEC Outlines Cybersecurity Questions, Sets Magic Number at 50 Firms

By Mary Beth Hamilton,
Tuesday, April 22nd, 2014

SEC Cybersecurity and logoThe SEC last week provided even more clarity into its growing focus on cybersecurity at broker dealers and registered investment advisers. A key takeaway in a Risk Alert issued on April 15, 2014, is that the Office of Compliance Inspections and Examinations (OCIE) will be conducting examinations of more than 50 registered broker-dealers and registered investment advisers, focusing on areas related to cybersecurity.

In order to help compliance professionals prepare and assess their firms’ responsive cybersecurity preparedness, OCIE has created a sample cybersecurity request document that outlines the types of questions firms can expect. OCIE is good to point out that these questions should not be considered all inclusive of the information that OCIE may request. OCIE will alter its request for information as it considers the specific circumstances presented by each firm’s particular systems or information technology environment.

You can find the Risk Alert and questions HERE.

Categorized under: Security  Hedge Fund Operations  Hedge Fund Regulation  Trends We're Seeing 



A Hedge Fund’s Guide to Technology Decisions: From Cloud to DR to Security

By Mary Beth Hamilton,
Thursday, April 17th, 2014

As part of our Emerging Managers Article Series, today’s article looks at technology considerations for launching a hedge fund. The technology landscape is changing quickly, especially with the adoption of cloud services and the heightened regulatory focus on cybersecurity. So we’ll dive into these two topics as well as touch on preparing for the inevitable disaster and common technology mistakes to avoid. Read more articles from the Series HERE.

The Cloud: Every Hedge Fund is Doing It

Cloud computing at hedge fundsHere at Eze Castle Integration, we see that 9 out of 10 hedge fund startups are selecting a cloud-based solution versus a traditional on-premise solution. If you aren’t already sold on the cloud, here are a few reasons we typically see clients select the cloud:

  • Easy and Complete IT Package: Cloud computing can support front-, middle- and back-office functions – everything from business applications and client relationship management systems to data management solutions and accounting systems

  • Cost Containment: CapEx to OpEx: While building out a Comm. room or data center requires capital expenditures, using an external cloud service that offers a pay-as-you-go service falls into ongoing operating expenditures. The transition to a cloud service provides many cost-savings beyond just eliminating the need to purchase and refresh equipment.

  • Improved Flexibility and Scalability of IT: Cloud computing is uniquely flexible and scalable, operating on a utility basis - allowing firms to pay as they go and only for the resources they will use.

  • Simplified IT Management = Less Maintenance: With cloud services, firms no longer need to handle server updates, patches, hardware installs and other computing maintenance issues. This saves firms from having to hire dedicated IT resources or allows them to focus IT staff on higher value projects. 

Meeting the SEC's Cybersecurity Expectations

Regardless of whether your firm opts for an on-premise solution or the cloud, security is fundamental when considering a fund’s technology setup and network infrastructure. It is so important that the SEC this month issued a risk alert providing additional clarity into how it will examine registered investment firms regarding their cybersecurity practices (Download the sample SEC security questions here.).

Categorized under: Launching A Hedge Fund 



Assessing Never-Examined SEC-Registered Investment Advisers: An SEC NEP Priority

By Shelley Rosensweig and Beth Smigel, Tannenbaum Helpern Syracuse & Hirschtritt,
Tuesday, April 15th, 2014

Shelley RosensweigOn January 9, 2014, the Office of Compliance Inspections and Examinations (“OCIE”) of the Securities and Exchange Commission (the “SEC”) published its 2014 examination priorities for its National Exam Program (“NEP”).   While the examination priorities include multiple areas that OCIE believes are higher-risk areas of the business and operations of investment advisers, this article focuses on the NEP’s initiative (the “Initiative”) to conduct focused, risk-based examinations of investment advisers who have been registered with the SEC for at least three (3) years (including non-U.S. advisers) but have not yet been examined by the NEP and are not subject to the “Presence Exam” initiative discussed herein (“Covered Advisers”). 

Beth SmigelThe examinations conducted by the NEP in accordance with the Initiative focus on two approaches.  The first approach consists of risk-assessment reviews which allow the NEP to obtain a better understanding of each Covered Adviser and include a high-level review of the Covered Adviser’s overall business activities, with a particular focus on the compliance program and other essential documents needed to assess the representations made on the Covered Adviser’s disclosure documents.  The second approach utilizes focused reviews which emphasize certain high risk areas of the Covered Adviser’s business and operations, including the following:

  • Compliance Program: NEP staff will examine the Covered Adviser’s compliance program and the effectiveness of such program (including a review of its books and records, even such records existing prior to such Covered Adviser’s registration with the SEC) to determine if a Covered Adviser has adequately identified conflicts of interest and compliance-related risks, adopted appropriate policies and procedures to mitigate and manage those conflicts and risks, and empowered a competent chief compliance officer to administer the compliance program;

Categorized under: Launching A Hedge Fund 



Should I Go With the Flow Into Liquid Alts? (Emerging Managers Part Two)

By Frank Attalla, CPA, and Marc J. Wolf, CPA, Rothstein Kass,
Thursday, April 10th, 2014

The following article is part of our Emerging Managers Insight Article Series and was contributed by Rothstein Kass. Read more articles from the Series HERE.

In Part One of Rothstein Kass’ Should I Go With the Flow Into Liquid Alts? Critical Questions for Alternative Managers Weighing a Move Into the Retail Space, we examined five key questions and critical considerations to help guide alternative investment managers through the decision-making process when weighing a move into the growing liquid alternatives market, including:

  • Emerging Managers Articles Series

    Will a registered product cannibalize my existing private fund business?

  • Will my strategy fit inside a mutual fund?

  • Do I understand the distribution landscape?

  • Should I use a stand-alone trust or a series trust? If a series trust, how do I choose the right one?

  • Is a registered fund too expensive? 

In Part Two, we conclude our examination of several other key questions and considerations.
 
6. Do I understand all my product options?
 
All registered funds are not created equal. There are many different varieties of mutual funds and closed-end funds, each with different:

  • Tax considerations,

  • Reporting requirement, and

  • Fee structures.

Managers should have an understanding of all the options and determine what works best for their strategy and their business.

Categorized under: Launching A Hedge Fund 



Should I Go With the Flow Into Liquid Alts? Critical Questions for Alternative Managers – Part One

By Frank Attalla, CPA, and Marc J. Wolf, CPA, Rothstein Kass,
Tuesday, April 8th, 2014

This week for our Emerging Managers Article Insight Series we have an article published by the Rothstein Kass Institute, the firm’s industry think tank, which outlines a set of important questions alternative investment managers should ask themselves if they’re weighing a move into the growing liquid alternatives market. The article, which will be presented in two parts, offers insights that can help managers determine whether a registered product is right for them, and provides tips on how to best implement their strategy if they decide to make the move. Read more articles from the Series HERE.

Articles for Hedge Fund ManagersAs regulatory requirements become more complex and onerous in the alternative investment space, there is clearly an evolution taking place in the market. There is an ongoing trend toward adding registered or retail products among many hedge fund managers. They are seeking new structures to bring their strategies to market while putting themselves in the best position to tap retail investors and wealth advisors in the new competitive landscape.
 
It’s no secret that a significant amount of capital is looking to move into the alternative investment space – just look at the numbers. According to Citigroup, assets in liquid alternative funds have surged from $95 billion in 2008 to more than $300 billion last year. Citi estimates that number will hit $1 trillion by 2017.
 
If you look at the trajectory, what seems to be clear is that liquid alternatives are here to stay. What may not be so obvious to some alternative managers is whether they should stay on the private fund side or follow the asset flow into the retail space by adding additional product offerings. It’s not a move that should be taken lightly.
 
Managers have to make smart, informed decisions about whether a registered product is right for them, and how they can best implement the strategy if they decide to make the move. There are many questions that need to be answered, and many options that need to be considered before making such a critical decision.
 
To help managers make more informed decisions in the new liquid alternatives reality, Rothstein Kass has compiled a set of important questions managers must ask themselves, and other critical considerations that should be part of their decision-making process.

Categorized under: Launching A Hedge Fund 



The Prime Brokerage Perspective for Emerging Hedge Fund Managers

By Glen Dailey, Jefferies & Company, Inc.,
Thursday, April 3rd, 2014

The following article is part of our Emerging Managers Insight Article Series and was contributed by Glen Dailey, Managing Director, Jefferies & Company, Inc. Read more articles from the Series HERE.

Glen Dailey, Emerging Manager Article Contributor

Starting a hedge fund is easier than ever with many vendors offering turnkey services to get a fund up and running quickly. The challenge is starting a successful hedge fund that will grow and become a viable organization. With over 8,000 hedge funds operating around the world, the competition to attract hedge fund investors is greater than ever. For someone starting a fund, you have to rely on your own capital and that of your friends and family to get the fund off the ground. From there, the key to success is outstanding performance.
 
Someone starting a fund should set a realistic schedule to launch and not rush to get the fund up and running too quickly. Take the time to partner with the right service providers that will support your business from the start and be there as you grow. Have a plan going into your new venture, which should include lining up friends and family as day one investors as well as reaching out to other investors to start a pipeline before you actually launch the fund. Once you are under way, you will end up getting tied to your screens, focused on performing, and time for marketing becomes scarce.

Categorized under: Launching A Hedge Fund 



Unveiling our Emerging Managers Insight Article Series

By Mary Beth Hamilton,
Tuesday, April 1st, 2014

Emerging Hedge Fund Manager Article SeriesThe start-up environment for hedge fund firms continues to evolve as managers face changing investor and regulator expectations, increased due diligence, new investment opportunities and advancing technology innovations.

To help firms navigate the new launch environment, Eze Castle Integration is excited to launch today our Emerging Managers Insight Article Series. The Series, created for emerging hedge fund managers, brings together expert guidance from industry insiders across prime brokerage, legal and compliance, technology and fund management.

Contributors to the Series include senior leaders at Eze Castle Integration, Jefferies & Company, Rothstein Kass, and Tannenbaum Helpern Syracuse & Hirschtritt LLP.

Here is a sneak peak of some of the articles we will publish each Tuesday and Thursday starting this week:

Categorized under: Launching A Hedge Fund 



Video: Why the Private Cloud Works for One Growing Investment Firm

By Kaleigh Alessandro,
Thursday, March 27th, 2014

Moving to the cloud is one of our favorite topics here on Hedge IT, and there is a compelling argument for hedge funds and alternative investment firms to consider leveraging the cloud for some or all of their infrastructure. INDOS Financial, an independent Alternative Investment Fund Managers Directive (AIFMD) depository based in London is one firm that chose to utilize the private cloud for their growing firm, and we’re excited to share their experience with you.

Watch the video below for an interview with Bill Prew, CEO and founder of INDOS Financial, as he talks about selecting the right technology infrastructure for his firm’s increasing demands.  

Categorized under: Cloud Computing  Infrastructure  Outsourcing  Videos And Infographics 



A Public Reminder on the Private Cloud Debate

By Kaleigh Alessandro,
Tuesday, March 25th, 2014

Earlier this week, it was reported that Nasdaq was reconsidering its Amazon-based cloud product, FinQloud. According to the Financial Times, FinQloud has failed to gain significant traction in the marketplace amongst financial services firms including broker-dealers and exchanges. If Nasdaq pulls out of the deal with Amazon Web Services (AWS), it would be a major disappointment to Amazon, who is actively pitching AWS to large financial institutions and enterprises.
 
Public vs Private CloudsWhether the limited adoption of FinQloud is a sign of a product flaw or a larger industry trend, we feel it important to draw attention to a longstanding debate within the financial services industry – a debate that we’ve shared our thoughts on here on Hedge IT many times: public vs. private clouds. 
 
It’s certainly possible that the slow adoption of FinQloud is a result of concerns over mass public cloud usage – a stern reality for many financial services firms who expect and demand that their critical applications and data be stored in a highly secure and available environment. Hedge funds and investment firms, in particular, cannot afford unexpected downtime, and unfortunately, we’ve seen several public cloud providers experience major outages in recent years. Just last week, Dropbox users logged in to find the service was unavailable, and Amazon and Google have both found their services in the headlines in recent years over very large and public disruptions.

Categorized under: Cloud Computing  Security  Hedge Fund Operations  Hedge Fund Regulation  Infrastructure  Outsourcing  Trends We're Seeing 



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