There is no one-size-fits-all solution built for hedge funds because not every fund is built the same. Funds with $500 million or more assets under management have very different requirements than smaller funds. Likewise, onshore funds have different reporting requirements from offshore funds and funds that deal in more exotic investments may have more complex accounting requirements than funds that focus primarily on the equities markets.
Selecting the right back-office accounting system for your hedge fund isn’t a decision to go into lightly. Funds that have been around a while tend to stick with the system they originally started out with. Changing systems means at least some workflow disruption and involves getting used to and learning a new way of doing things. As such, we recommend doing your due diligence so you get it right the first time as it’s possible what you choose will be with you for the long haul.
A number of firms are in the business of providing accounting systems that work well with certain types of hedge funds. These include
- Advent Geneva (SS&C)
- Eze (SS&C)
- Pacific Fund Systems
- and FundCount
In this article, we present some factors to consider when evaluating just which type of support system or systems you need and which products on the market are most suitable for you specifically.
Large Hedge Funds
It stands to reason that larger-size funds have more demands to be met compared to smaller funds. When your fund has several managers and a large number of investors, you need a front office to manage clients and marketing, as well as a back office to handle accounting and administration. Some providers offer front- and back-office packages, which can in many ways be a convenient advantage. There are often however, some disadvantages with these all-in-one package deals. In addition to greater cost, these types of systems are often quite robust on the front end, with good CRM and marketing capability, while skimping on the back end when it comes to the ability to perform more complex accounting or flexibility where reporting are concerned. Some larger hedge funds have tackled this issue by integrating a dedicated back-office with their front office system. A fully-rounded back-office accounting system is necessary when engaging in activities like shadow-accounting your fund administrators. If you are in the market for a robust back-office, contact our sales reps and request a demo.
Smaller operations may choose to outsource fund administration rather than invest in systems and staff. In this case, outsource administrators tend to use only a back-office system, as they have no need for the kind of front-end support required by an investment manager. The exception to this rule might be for those funds that are engaged in more exotic activity that have unique administrative requirements an outsource company is not equipped to deal with, such as derivatives, currency-trading, swaps, foreign fixed income, etc. FundCount, which isn’t constrained by geography or asset class, is a valid solution in these types of instances.
Family offices are another good example here. Some family offices engage in hedge-fund type activity, but they don’t need an expensive front office. They only need a fund administration and back-office accounting system.
Keeping investors in the loop, providing regulatory transparency and looking at your data from every angle so that you make timely and profitable decisions are some of the reasons reporting flexibility and accuracy are so important. Any system you ultimately settle on should come with sturdy, accurate and reasonably simple reporting capacity. Ideally, want the ability to report using powerful visual components that communicate complex details in a clear and easy-to-understand format. This is especially true when you have an investor or group of investors to retain. Contact us for more information on FundCount’s reporting capability.
Markets provide plenty of challenges and competition in the hedge fund industry over a limited pool of investors, along with the demands required to maintain a winning edge leave little room for other concerns. You want fund support that eliminates repetitive steps through automation, workflow that simplifies and takes out guesswork out of necessary processes, and simplicity in reporting in order to minimize all the distractions. When examining any product, give some weight to its ability to integrate with other systems and check to make sure that it saves you time as opposed to adding even more to your workload.