Hedge Fund Intelligence New standards in Investor Transparency

NEW STANDARDS IN INVESTOR TRANSPARENCY our ability to aggregate data have put us in a phenomenal position in terms of offering transparency on performance, risk and exposure on a real-time basis,” he says. The growth that Northern Trust has seen in its franchise across the world mirrors a global trend that is playing to the strengths of larger administrators, potentially squeezing smaller, niche players and probably acting as a catalyst for more consolidation in the industry. “For a while, every big fund has recognised the need to outsource its administration to a reputable third-party administrator,” says Northern Trust’s Cherecwich. “But regulatory developments such as AIFMD are also meaning that funds’ external administrators also need to offer trustee and depositary services. This in turn means that bank-affiliated firms such as Northern Trust, which are supported by big balance sheets, will increasingly enjoy a competitive advantage.” THE RISE OF ‘SHADOW REPORTING’ One of the more striking manifestations of rising demand for enhanced transparency standards in the hedge fund industry in the US is the growing importance of shadow accounting and administration. There is nothing especially revolutionary about shadow accounting itself. “In the early days of the hedge fund market, most funds received no more than the administrator’s monthly NAV report,” Sanchez explains. “As a result, investors began to expect there to be some kind of shadow function in-house to give managers a better understanding of the accounting and management of the portfolio.” “As the market matured and daily NAV reporting and middle-office services were offered by administrators, it became industry standard that if you were a billion dollar club (BDC) hedge fund you likely had not just an administrator,” Sanchez adds. “You would also have an in-house middle office providing trade support functions to your portfolio managers and © HedgeFund Intelligence Peter Sanchez, CEO at Northern Trust Hedge Fund Services >> Our growth has been global, because we have significant operations in Europe and Hong Kong, but the predominant growth has been in the US >> June 2014 Special Report 17

Hedge Fund Intelligence New standards in Investor Transparency | Page 17