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FATCA: What You Need to Know About Tax Compliance

By Kaleigh Alessandro,
Tuesday, July 29th, 2014

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.
 
FACTA and YouThis 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).

Categorized under: Hedge Fund Regulation  Hedge Fund Due Diligence  Hedge Fund Operations  Outsourcing  Trends We're Seeing 



Persistent Automation for Fund Management: The New Reality, Part 2

By Branden Jones, Global Head of Marketing, Liquid Holdings Group,
Thursday, July 10th, 2014

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

Processing   

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.

Categorized under: Cloud Computing  Hedge Fund Operations  Infrastructure  Communications  Outsourcing  Software  Trends We're Seeing 



The New Reality: Persistent Automation for Fund Management

By Branden Jones, Global Head of Marketing, Liquid Holdings Group,
Tuesday, July 8th, 2014

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.New Hedge Fund Reality - Liquid Holdings
 
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.

Categorized under: Cloud Computing  Hedge Fund Operations  Infrastructure  Communications  Outsourcing  Software  Trends We're Seeing 



What is a Security Vulnerability Assessment and How Does it Work?

By Kaleigh Alessandro,
Tuesday, July 1st, 2014

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?
 Cybersecurity Whitepaper
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.

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



Tips for Tackling Your Financial Firm's Cybersecurity To-Do List

By Kaleigh Alessandro,
Thursday, June 26th, 2014

Cybersecurity WhitepaperWe 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 



When Billion Dollar Hedge Funds Make the Cloud Move

By Mary Beth Hamilton,
Tuesday, June 24th, 2014

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.

WhitepaperFor 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:

Office Relocations

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.

Categorized under: Cloud Computing  Launching A Hedge Fund  Hedge Fund Operations  Infrastructure  Outsourcing  Trends We're Seeing 



Why Billion Dollar Hedge Funds Are Going Cloud

By Mary Beth Hamilton,
Thursday, June 19th, 2014

Today we released a new whitepaper that looks at a growing trend we are seeing -- billion dollar hedge funds and investment firms moving to the cloud. Here is a sneak peak at the paper's content as well as a video interview with Bob Guilbert on why firms should read, Why the Billion Dollar Club is Headed to the Cloud.

It’s More Than Managing Money

Billion Dollar Club Goes CloudThere’s more competition in financial services than ever before. Every week, new and agile boutique firms sprout up, armed with proprietary models and the right technology foundation to compete – intensely – with the major players for billions of investment dollars. Firms of every size are competing to deliver broader ranges of increasingly exotic instruments, specialized funds, and high-performance investments that deliver competitive returns to investors whose demands and expectations continue to climb.

But when it comes to performance and success in financial services, there’s more to evaluate than just the hard numbers. Returns alone aren’t enough. Today, savvy firms know they need to deliver more. In a post-Madoff, post-2008 world, the SEC and FINRA – and investors as well – are scrutinizing all corners of the operation. There’s an increased focus on how operational risk is managed and how firms respond to greater demands for transparency. That means it’s more important than ever for firms to deploy and maintain robust, scalable, and secure technology infrastructures.

Categorized under: Cloud Computing  Hedge Fund Operations  Infrastructure  Outsourcing  Trends We're Seeing  Videos And Infographics 



What Happens to Your Firm's IT Team When You Go Cloud?

By Kaleigh Alessandro,
Tuesday, June 10th, 2014

hedge fund staffingAs your firm evaluates moving to the cloud – as most firms today will inevitably do – your list of priorities will likely include:

  1. Regulatory and investor impact

  2. Migration plans and operational effects

  3. Hardware disposal and infrastructure changes

But another critical business area your firm should put some thought into is the effect of the cloud movement on your internal IT department (assuming you have one). What exactly happens to a firm’s IT team once it moves operations into a cloud environment? Is there still value in maintaining an in-house staff?
 
The simple answer is ‘yes,’ but the day-to-day responsibilities for those staffers may not look quite the same post-cloud. With a fully managed service provider, everyday management is typically taken care of – leaving internal resources with a lot more time on their hands. But that doesn’t mean there’s no longer a need for an IT department.

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



Hedge Fund Transformation, Part 2: Cloud, Communication & Control

By Kaleigh Alessandro,
Thursday, June 5th, 2014

Hedge Fund OutsourcingIn Part 1 of our Transformation of IT seminar recap, we shared what our expert panel discussed relative to evaluating outsourced solutions and leveraging technology solutions. Our panel included Vinod Paul, Managing Director, and Steve Schoener, Vice President, at Eze Castle Integration, John Budzyna, Managing Director, and Dave Messier, Director, at KPMG, Timothy Ng, Managing Principal at Clearbrook Global Services, Jon Anderson, Global Head of OTC Derivatives at SS&C GlobeOp and Sheldon Rubin, COO/CFO/CCO at S Squared Technology LLC.
 
Read on to see what our speakers had to say about the considerations for outsourcing, typical transformation challenges and more. You can also read Part 1 of the event recap or listen to the complete audio replay.

Q: Whether it's technology, compliance or another area of the business, firms ultimately need to decide if they are going to manage these areas internally or outsource to an expert vendor. How does a hedge fund determine what is the right solution for them and whether to outsource or maintain their own systems and operations?

  • When considering internal operations vs. outsourcing, a firm must determine which option gives it the most control over the given process. The firm is not only considering outsourcing technology but also outsourcing control.

Categorized under: Hedge Fund Operations  Launching A Hedge Fund  Cloud Computing  Hedge Fund Regulation  Communications  Outsourcing  Trends We're Seeing 



Hedge Fund Transformation, Part 1: Evaluating Outsourced Solutions & Leveraging Technology

By Jennifer Odence,
Thursday, May 29th, 2014

Earlier this month alongside KPMG, we hosted a seminar in New York on “The Transformation of IT and Hedge Fund Operations.” We asked experts to examine the changes impacting hedge funds today and the future of this industry transformation. Our distinguished panel included Vinod Paul, Managing Director, and Steve Schoener, Vice President, at Eze Castle Integration, John Budzyna, Managing Director, and Dave Messier, Director, at KPMG, Timothy Ng, Managing Principal at Clearbrook Global Services, Jon Anderson, Global Head of OTC Derivatives at SS&C GlobeOp and Sheldon Rubin, COO/CFO/CCO at S Squared Technology LLC.
 
OutsourcingBelow is a brief recap of the topics discussed during the lively event. To listen to the full audio podcast of the event, click here.

What do you see as the greatest transformation the hedge fund industry has undergone or is currently in the midst of?

  • There is more acceptance of outsourcing. Many firms are leveraging outsourced service providers for front office support, for example, and leaving their in-house departments to focus on the core business. 

  • Many firms starting today don’t even consider building out a middle and back office – they immediately look to outsourcing. The quality and opportunities provided by outsourced service providers, including administrators, are much better than they have ever been before.

Categorized under: Outsourcing  Hedge Fund Due Diligence  Hedge Fund Operations  Trends We're Seeing 



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