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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