Hedge Fund Intelligence New standards in Investor Transparency | Page 18

NEW STANDARDS IN INVESTOR TRANSPARENCY
also an in-house accounting shadow function.”
The next stage in the evolution of the market saw some of the largest funds
re-evaluating the economics of in-house shadowing. “Demands for added transparency from institutional investors as well as regulators led to a significant
increase in the investment that firms had to make in
terms of people, technology and data management,”
says Sanchez. “And as it became a more expensive and
less scalable operation, many BDCs started to question whether it made sense to keep the middle-office
activities in-house.”
Many concluded that it did not. “A trend we’ve seen
is that many BDCs are looking to outsource middleoffice services including trade management, portfolio
management and P&L valuation,” says Sanchez. “And
as the middle-office services offered by Northern
Trust comes with shadow NAV reporting, some BDCs
are now seeing they can kill two birds with one stone.”
Pete Cherecwich, head
Today, as Ernst & Young explains in a recent briefing
on shadow accounting, “Integrity and accuracy of
of the global fund
data are critical for trading, portfolio management,
services business unit
compliance, risk management and reporting to invesat Northern Trust
tors.” Critical indeed, especially when you have $150
>> As long as hedge fund
billion or so of assets under management, as Bridgemanagers could depend
water Associates does. Originally set up in a two-bedroom apartment in 1975, the Westport, CT-based
on being paid 2+20, they
Bridgewater was ranked as the largest and best-permay have believed they
forming hedge fund manager in the world in 2012
could manage the middle
and 2013.
office in-house. As soon
In 2013, Bridgewater took the process of transparas fees start moving down ency in the hedge fund world on to a new plane when
it announced that it had appointed Northern Trust
towards 1+10, they may
to shadow the fund administration work undertaken
start to see it as too much
by BNY Mellon. In 2011, Bridgewater fully outof an expense >>
sourced its middle and back-office operations to
18 Special Report June 2014

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