Hedge Fund Intelligence OPERATIONAL DUE DILIGENCE | Page 2

The fact is, regulation is adding to the baseline costs required to support a hedge fund. It raises
the threshold for market entry for new fund launches, and it changes the outlook of established
firms when contemplating operating budgets. At the end of the day, regulation presents a new
reality, and managers who adjust their financial management/budgeting process to account for
that reality are better positioned to succeed.
Second, managers are discovering that outsourcing doesn’t completely eliminate the burdens
of regulation. New regulations are often broadly worded, subject to interpretation and changing
frequently. Moreover, a manager can outsource the work, but accountability for the accuracy
of regulatory reporting remains with the manager. The result is that regulatory compliance is
always a collaborative process, with the manager and administrator working together: What has
changed? Do we need to modify our reporting methodology? Are we prepared for new regulations?
How do we monitor compliance on an ongoing basis?
Finally, managers are realizing that it’s all about the data. The common thread among all these
new regulations is they dramatically increase the amount of data managers must produce and
maintain. However, some of the most forward-thinking managers are recognizing that the value
of “big data” capabilities extends far beyond meeting regulatory demands. These firms understand
that those same principles – data aggregation, historical analysis, custom tagging functionality,
on-demand or real-time data retrieval – can have a positive impact on their investment strategy
and their operations: what we call Operational Alpha™. So managers are now starting with the
question, “How do I manage my obligations?” This leads to a fundamental rethinking of operational
and data needs, not only for regulatory purposes, but for how the firm uses and accesses data