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The Operational and Technical Challenges of Multi-Manager Funds

By Dina Ferriero | Thursday, April 14th, 2011

Earlier this week, our friends at Ledgex hosted a webinar outlining some of the common operational and technical challenges that are faced by multi-manager funds. The goal of this event was to provide attendees with insight into the following broad areas:

  • Transparency and Risk: Changing expectations and how firms can adapt

  • Operational Risk Assessment: Why it is important for multi-manager funds

  • Portfolio Management: The technical hurdles of managing a fund

  • Managing Liquidity: The keys to managing both investor and investment liquidity

Throughout the webinar, experts from Ledgex Systems and Rothstein Kass Business Advisory Services provided great information about the fund of hedge funds industry. The speakers for the event were Brian Macallister, Managing Director at Ledgex, and Andrew de Montille, Senior Manager at Rothstein Kass.

Below is a summary of the key topics discussed during the “Operational and Technical Challenges of Multi-Manager Funds” event:

Alternative Industry Trends

Overall, the outlook for the alternative investment industry in 2011 is promising. More funds are expected to launch, and fewer closures are anticipated compared to recent years’ statistics.

Institutional investment capital is gaining in influence, primarily because it remained a stable source of capital throughout the financial crisis, so investors are more inclined to continuing trusting it in 2011. Additionally, although institutional investors have exhibited a preference for allocations to larger funds, it is expected that they will begin to diversify to smaller managers in the coming year.

As a result of tightening regulations, funds are starting to implement improvements within their organizations. Operational upgrades include enhancing investor transparency and outsourcing functions that are not directly related to investment. Also, consolidations are expected to become more common throughout the industry, allowing firms to lower overhead costs by achieving the benefits of scale.

Operational Risk

The U.S. Treasury defines operational risk as “the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.” Regardless of the state of the market, operational risks remain a constant threat, even for the strongest investment managers.

To assess these risks, firms and investors should perform operational due diligence to ensure that best practices are being observed. Following are the primary areas that are covered in the assessment:

  • Organization

  • Internal Controls and Compliance

  • Valuation Methods and Investor Reporting

  • Trading and Operational Processes

  • Service Providers and Counterparties

New Technical Challenges Facing Multi-Manager Funds

As the business and technology landscapes continue to change, investment firms are facing more pressure both from a regulatory perspective and from investors. Changing regulations have resulted in longer fundraising cycles, enhanced due diligence processes, and increased transparency requirements.

What does this mean for firms in terms of new technology challenges?

Legacy technology and business processes will no longer support the rapid pace of change that is seen throughout the industry. For instance, firms should not rely on Excel spreadsheets as central repositories for their data. To overcome this issue, funds should assess their current technology infrastructure to get an accurate estimation of their dependencies and begin planning for the future.

One major technological consideration is data management. Managing data throughout an organization can be complex, as it is typically coming and going from many different counterparties and in a variety of formats. Systems such as those provided by Ledgex, can help your firm standardize and streamline data management when it comes to the following aspects:

  • Enterprise Platform

  • Document Management

  • Business Tools

  • Collaboration Tools

  • Centralized Data Source

  • Portfolio Management

  • Portfolio Monitoring

  • Compliance & Risk Management


The Ledgex platform, delivered by Ledgex Systems, helps fund of hedge funds, pensions and private equity funds organize, manage and automate their business data and processes faster and more efficiently than current market offerings so they can better service clients, meet compliance regulations and outperform their competitors. For more information, contact Ledgex today.

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