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Optimizing Hedge Fund Operations, Staffing and Technology

By Kaleigh Alessandro | Thursday, June 30th, 2016

There is a lot of change happening across the investment management industry, as hedge funds and alternative firms deal with uncertain markets, regulatory pressure and a fiercely competitive landscape. As a result, hedge funds are becoming smarter and thriftier. Budgets are tightening, and with increased demands from investors and regulators, funds now face greater challenges than ever before.

A key challenge in today’s landscape is weighing cost versus benefit when it comes to maintaining internal hedge fund operations and technology. Back in the aftermath of the 2008 economic crisis, operational cuts were made across personnel, infrastructure and everywhere in between. Funds rebounded in recent years, but with global challenges (e.g. Brexit) looming and a tough economic market for investments, fund managers are once again looking to maximize efficiency and operations across the organization. 

How does a firm go about maintaining their existing levels of performance and efficiency while also trimming costs and anticipating changes that cannot yet be defined? Determining what a fund should be evaluating is half the battle; developing an actionable game plan and executing it is the hard part. 

Hedge Fund Staffing

People are the foundation of a company no matter what the size. Ironically, managing the day-to-day operations are not tasks that investment professionals typically have experience with or have much interest in. In order to create a performance-driven hedge fund operating staff, fund managers should identify and define the roles and responsibilities of each staff member.

Setting individual and group goals and objectives, as well as a clear method for achieving these, is one of the most important things a fund can do in order to maintain an effective, scalable staff. If a hedge fund does not have a sound staffing and operating model, managers may find that certain operational tasks are not being fulfilled, which could lead to portfolio or compliance risk.

When evaluating staff, a manager should look at each role within the firm and determine what tasks could be consolidated to reduce possible duplication of work and increase operational efficiency. During periods of growth, firms tend to hire quickly as they look for bodies to complete new tasks, but as firms tighten the reins, they are finding that consolidating tasks into one role makes sense. Firms are also finding significant ROI with outsourcing tasks to third-party specialists as they can reduce headcounts while increasing operational efficiency.

Some key hedge fund staffing considerations include:

  • Identify roles and responsibilities of your staff and establish clear-cut operational goals and objectives

  • Only reduce staff when you can consolidate tasks without risking your operational integrity

  • Look to outsource certain components of your business, as there is ROI to be found

  • Seek third party advice when starting up your firm (e.g. staffing, legal, technology, etc.)

Hedge Fund Technology

Technology selection, maintenance and support have always been challenges to investment managers. Much like a strong hedge fund operating model, a well-architected technical infrastructure is a must-have in order to support your staff and provide the ability to scale your technology needs down the road.

As firms are challenged with reduced technology budgets, they should evaluate which applications are mission-critical to their operations as well as evaluate hardware components to ensure they are under warranty and have continued support. By determining mission-critical versus non mission-critical applications, firms can assess where they can reduce costs. A simple exploratory audit with your staff members can help determine which applications, data or research services are not being used and may no longer be necessary.

Balancing resources with technology is also a challenge when evaluating your operation. There are many systems built specifically to help automate fund operations across the front, middle and back office systems. Most systems were created to save time and reduce manual errors, which is always beneficial, but these systems don’t work on their own. Ensuring that you have the appropriate resources and are informed and trained on these are the most important aspects of your operation.

Although the technology is automating your business process, understanding the system functionality, the support model and the expected service level from a third-party vendor is often overlooked by hedge fund managers and hedge fund staff.

Some key hedge fund technology considerations include:

  • Complete a technology audit and establish mission-critical applications

  • Review your infrastructure to determine its ability to support your existing needs and ability to scale

  • Evaluate the cost of technology and eliminate what is not needed to reduce operational costs

  • Automate and streamline your data in order to reduce manual processes. Automation will help scale your business, reduce your overall headcount and eliminate operational risk

  • Remember technology/automation must be supported

  • Recognize common technology mistakes and how to avoid them

Hedge Fund Technology Outsourcing

*Editor's Note: This article has been updated and was originally published in July 2010.

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