We’ve tapped the expertise of nine experts in the hedge fund startup space to share their thoughts on a range of topics specific to emerging hedge fund managers. Below are some highlights, and you can read the entire Emerging Managers Insight Series eBook here.
Set a realistic schedule to launch and don’t rush to get the hedge 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 as you grow.
Budget for a marketer in your first two years of operation. If you look at the largest funds in the industry, they all have substantial investor relations teams that keep current investors informed while prospecting for future investors.
Capital introduction is a much sought after service from prime brokers which can be very helpful in providing a new hedge fund exposure to potential investors. Take advantage of introductions and begin to build relationships with potential investors.
If there’s one thing we’ve learned over the years when it comes to security, it’s that there’s a whole lot more to creating a secure hedge fund (or any business for that matter) than robust technology. Before identifying infrastructure components and implementing operational policies, a firm must first be clear on what its attitude is toward security. This attitude will filter through the company from the top down, and will therefore dictate how employees and the business as a whole operate on a daily basis.
To give you a clearer understanding of what we mean, we’ve created three security profiles that cover a wide spectrum in terms of security attitudes and practices.
Under the Radar: Low Security
If you’re attitude toward security is low, odds are you’re barely scraping the surface in terms of what practices and policies you should be employing to maintain proper security firm-wide. You likely rely on quick fixes to solve problems instead of looking at the bigger picture and thinking strategically about how security can both benefit and protect your business. You’ve employed minimal preparedness efforts and could be in for a difficult task if faced with a serious security incident. You probably take a “it won’t happen to me” attitude and don’t take security seriously enough – a stance that could endanger your firm in the long term.
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
The last five years has seen an increase in reliance on technology among financial institutions. IT outsourcing has become more attractive to the financial services industry - but against the backdrop of increased reliance on complex IT systems and operations is the heightened risk of cyber-attacks and system disruptions.
In June 2013, the Monetary Authority of Singapore (MAS) issued the Technology Risk Management Guideline (TRMG), which addresses existing and emerging technology risks within financial institutions.
The objective of the TRMG is for financial firms to establish a sound and robust technology risk management framework, strengthen system security, reliability, resiliency, recoverability and deploy strong authentication to protect customer data and systems.
In today’s blog article we will take a look at some of the key guidelines covered in the guide:
The competition amongst firms in the financial services industry is ever burgeoning, and in order to achieve differentiation, it is imperative for firms to create and maintain robust, manageable, scalable and reliable technology infrastructures. Increasingly, we’re seeing more than just emerging managers opting for a cloud solution and established hedge funds and alternative investment firms shifting gears from traditional on-premise IT infrastructures to cloud services.
If you missed our webinar yesterday on Why the Billion Dollar Club is Going Cloud, read our recap below or scroll down to watch the full webinar replay, featuring Eze Castle’s Managing Directors Bob Guilbert and Vinod Paul.
The Business Case for the Cloud: Why Established Firms are Making the Move
Across the industry, established firms that have been in business for several years are moving away from physical infrastructures and adopting the cloud. Traditionally, investment firms would allocate substantial capital budgets to build on-premise Communication (Comm.) Rooms. These cost-intensive infrastructures can take months to build out, and specific expenses can vary depending on a firm’s unique needs. For example, at minimum, investment firms require file services, email capabilities, mobility services and remote connectivity, as well as disaster recovery and compliance. Beyond those, many firms also require systems and applications such as order management systems (OMS), customer relationship management tools (CRM), and portfolio management or accounting packages.
Categorized under: Cloud Computing Disaster Recovery Security Hedge Fund Due Diligence Hedge Fund Operations Hedge Fund Regulation Infrastructure Communications Outsourcing Trends We're Seeing Videos And Infographics
We’ve seen the face of the financial services industry change dramatically over the last few years, with emerging technologies, investor transparency demands and growing competition fueling firms to assess their operations and focus on the health and success of the overall business. But perhaps beyond any of these trends, the focus on industry regulations and compliance efforts may be the most significant in changing the way financial services firms do business.
This year alone, we’ve seen regulatory initiatives dominate headlines and leave firms scrambling to comply, notably the SEC’s cybersecurity guidelines released this spring and the official implementation of the Alternative Investment Managers Fund Directive (AIFMD), which went into effect last week. Also becoming official this month is the Foreign Account Tax Compliance Act, or FATCA, which requires U.S. persons to report financial accounts held outside of the United States and financial institutions (notably banks) to report foreign financial accounts and clients who hold foreign assets.
To identify non-compliance, the Internal Revenue Service is requiring financial institutions with foreign entities and foreign financial institutions (FFIs) to disclose information about U.S. clients with balances over $50,000. The law threatens a steep 30 percent withholding tax on payments for non-compliant FFIs.
There is also a significant cost for firms to implement compliance procedures and reporting standards to meet the legislative requirements of FATCA. It is reported that implementation costs average between $100,000 and $500,000 depending on firm size and are expected to amount to roughly $8 billion USD a year for financial institutions alone (not including costs to the private sector, IRS and foreign entities).
Following is the second part in a two-part guest post from Branden Jones, Global Head of Marketing at Liquid Holdings Group, Inc. based in New York, NY. To read Part One, click here.
In this age of data management—this new state of cross-office functionality—operational models must be able to house, curate, and level-off information sets as they happen. Funds must not only actively manage a growing universe of market data but also tackle performance reporting, risk projections, disaster planning, and partitioned client data.
To successfully, and simultaneously, manage these activities, funds must have a data operational model that supports automation, where it makes sense:
- Continuous processing, as an underlying system
- Consistent normalization, across the board
- Historical, since inception view
- Defensive measures, to protect the operation
Real-time, continuous actions are the new normal in today’s hedge fund reality. Funds are expected to understand, identify, and take advantage of opportunities as they occur. However, from a data standpoint “real-time” is only a point on a larger continuum of activity that occurs when a participant observes or captures a single event in time. Continuous processing is the underlying current that accepts and captures, or rejects data inflows and outflows. As pressures increase from both investors and regulators, managers should rely on continuous, automated services, processes, and technology to support their business, not only as a viewable segment, but constantly, throughout the lifespan of the fund.
Following is the first part in a two-part guest post from Branden Jones, Global Head of Marketing at Liquid Holdings Group, Inc. based in New York, NY.
This is the year for big data. Across industries, firms have unprecedented amounts of both public and private information sets – from user profiles and consumer habits to business outputs and proprietary algorithms. But access to data, or information at large, does not guarantee a valuable yield. Jonathan Shaw, managing editor of Harvard Magazine notes, “The [data] revolution lies in improved statistical and computational methods, not in the exponential growth of storage or even computational capacity.” Data is ubiquitous but not intrinsically valuable – it needs to be smartly processed, not just farmed.
For hedge funds, data processing is the quiet, invisible process that moves through the trade lifecycle—accessed from external entities like exchanges and brokers, modified and adjusted in execution, and at times, frozen in snapshots for an increasingly complex group of investors and regulators. More operational credibility and regulatory compliance is required than ever before, with increased scrutiny of the secret buy-side manna that goes along with it.
Smarter data management can be expensive and time-consuming as funds seek to keep up with regulatory, compliance, and transparency requirements while navigating through a sea of market opportunities. Good fund management starts and ends with precise, accurate data management. Truly taking advantage of data, and smarter computational methods, requires not only shedding the skin of outdated models, but categorically understanding a whole new data ecosystem, with new methods of processing, through selective automation and augmented observation. Once that new data ecosystem has been embraced, fund managers can spend their time mastering alpha generation and capital building initiatives.
One of the first questions on the SEC’s cybersecurity questionnaire for financial firms asks firms to "indicate whether they conduct periodic risk assessments to identify cybersecurity threats, vulnerabilities and potential business consequences", and if so, who conducts them and how often. Clearly the goal behind this question is to ensure that firms are taking a proactive approach to security. But what exactly does this assessment entail?
Here’s a quick overview.
The type of risk assessment typically associated with information technology/security is an external vulnerability assessment. Essentially, this is the process of identifying and categorizing vulnerabilities related to a system or infrastructure. Typical steps associated with a vulnerability scan or assessment include:
Identifying all appropriate systems, networks and infrastructures;
Scanning networks to assess susceptibility to external hacks and threats;
Classifying vulnerabilities based on severity; and
Making tactical recommendations around how to eliminate or remediate threats at all levels.
We continue to speak with clients and prospects on a regular basis on the topic of cybersecurity, and with the expectation that the SEC will start security exams sometime around September, it’s evident that firms are working diligently to answer the questionnaire and shore up internal practices.
To continue fostering education around this topic, we hosted two events last week dedicated to cybersecurity for hedge funds and investment firms. For your convenience, you can read a brief recap of some of the key topics discussed or scroll down to watch our full webinar replay.
Cybersecurity a Hot Topic on State & Federal Level
By now, we all know the SEC has taken steps to assure that hedge funds and investment advisers put security mechanisms and practices in place to protect against cyber threats. SEC Commissioner Luis Aguilar said there is “substantial risk that a cyber-attack could cause significant and wide-ranging market disruptions and investor harm.” Even beyond the federal level, some states are chiming in on the cybersecurity front. Earlier this month, Massachusetts and Illinois acknowledged that they were polling investment advisers about their security practices, and that based on responses, state regulations could be impacted.
Categorized under: Launching A Hedge Fund Security Hedge Fund Due Diligence Hedge Fund Operations Hedge Fund Regulation Infrastructure Communications Outsourcing Business Continuity Planning Trends We're Seeing Videos And Infographics
Timing is everything. Last week we released a new whitepaper, Why the Billion Dollar Club is Headed to the Cloud, and shared an excerpt here on Hedge IT about why hedge funds are making this move. Today, to entice you to download the full paper, we'll share WHEN firms are making the cloud move.
For newly emerging investment firms, the choice to adopt a cloud-based architecture is an easy one. Few firms have a business model where an in-house Comm. Room makes strategic or economic sense. But what about established firms that have been in business for several years and have invested millions of dollars in infrastructure? When is the right time to make a move?
Opportunities and timing will vary, but generally speaking, the following three scenarios represent ideal inflection points for moving to the cloud:
This is an ideal time to switch to the cloud. Many companies are understandably reluctant to take on the expense of moving a massive, expensive, and often outdated infrastructure to a new location – particularly if the company expects to phase out certain portions or components in the following 24-36 months. In such cases, migrating to the cloud before relocating offices can be a smart move.