[ M A R K E T R E V I E W | H F A ]
The front-office at hedge funds and asset managers has evolved in such a way that having the right data to execute and manage trades has become essential . Getting the most out of your data , being it from the investment book of records ( IBOR ) or the accounting book of records ( ABOR ), means a lot of overlapping of activities , blurring the lines between the front- , middle- and back-office . Data from each of these is needed by the other simultaneously , whether it is for real-time reporting , risk analytics , or investment decision-making . Because of this , demand has shifted away from traditional functions and more towards a model where data from the back-office can feed into the middle and the front . “ Fund admins are in a unique position to provide the data that feeds into the front-office as the books and records of the fund , the admins are best placed as a single source of all the activity of the fund . This can be delivered in a scalable , secure and controlled environment reducing operational ,” says Joan Kehoe , global head of alternative investment services , JP Morgan . Many fund managers are facing a new regulatory regime on risk reporting and account segregation , despite having neither the in-house expertise nor the systems to comply . As a result , hedge funds are looking at
“ Fund admins are in a unique position to provide the data that feeds into the front-office .”
JOAN KEHOE , GLOBAL HEAD OF ALTERNATIVE INVESTMENT SERVICES , JP MORGAN
what infrastructure they can outsource , either from a pure outsourced fund administration model to having a proportion of their middle-office activities outsourced . “ To address this , fund administrators have been moving to a more data-centric operating model where they can provide enhanced data messaging capabilities . This allows for near-real time IBOR , API and a rich data set allowing managers to make those front-office decisions in areas such as performance analytics , regulatory reporting , risk reporting etc ,” adds Kehoe . There has been noticeable effort from fund administrators to bolster their capabilities in performing collateral management functions and handling the investment book of records ( IBOR ). Particularly in the US with the move to a T + 2 settlement cycle , as well as the changing rules for payments for non-cleared derivatives , there is more pressure to outsource the middle-office . The choice facing fund administrators in addressing these front- and middle-office demands is to either improve their technology from within or see what other companies can help them through partnerships or acquisitions .
Buying the best An increasingly popular route for fund administrators to expand into providing front-office services has been through mergers and acquisitions ( M & A ). In July , State Street revealed it will acquire Charles River , one of the most used order management systems ( OMS ) by the buy-side , in a massive $ 2.6 billion deal . This announcement was followed just a week later by the news that SS & C Technologies had agreed to purchase Eze Software , another OMS provider , for $ 1.45 billion . Elsewhere , Citco had been previously linked with a stake in LightPoint , an execution management system ( EMS ) and OMS provider that also offers an IBOR platform . These deals are a testament to how important having a data services will be for the fund administration business going forward . “ To carry out middle- and enhanced-office functions , you have to take the trades throughout the day . More administrators are becoming involved with OMS in order to get into the front-office ,” says Jay Peller , head of fund services , Citco . “ Having an OMS on our clients ’ desktop makes everything completely straight-though . Once you get there , you have to do more risk and P & L reporting on a real-time basis for the front-office . There are very few of us in that space , and only the very large ones can do that , so it is an evolution of the admin world .” The move to the OMS scene is also largely a reflection of the evolution of their hedge fund clients , which have adopted more complex , multi-strategy funds that require integrated data offering . As fund administrators transition further into the front-office , traditional back-office functions are becoming so commoditised that activities such as NAV are a given . Coupled with increasing consolidation between fund administrators , the front-office is helping them stay relevant and compete on a whole new level . “ The standard fund admin activities are still performed , but there is an emergence of investment managers looking to synthesis data . With more managers running managed accounts platforms , data is coming in from wider accounting platforms . They are looking for products that can consolidate this data and help with their front-office ,” explains Eamonn Greaves , head of business development , SS & C GlobeOp .
Caught in the middle Another route fund administrators are taking is through tactical
48 Global Custodian The Hedge Fund Annual 2018