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Running Your Hedge Fund's Satellite Office: How Hard Can It Be?

There comes a time in the life of many hedge fund managers when they start to think more internationally. This can be caused by a variety of strategic considerations, including, but not limited to:

  • Time zone – locating portfolio management teams in more hospitable time zones for trading purposes
  • Research purposes – proximity to markets and companies that are a key part of the firm’s strategy
  • Investor relations – builds confidence with regional investors if some parts of the portfolio management team are based locally
  • Operations – closer engagement with local bourses and brokerages that are critical to a hedge fund’s operations – e.g. for high frequency strategies

For a hedge fund manager that has evolved with most of its operations under one roof, opening a new office in another part of the world can represent a challenging task. However, the technology now exists to make this process a much smoother task than previously.

If the recent pandemic has taught us anything, it is that technology can seamlessly integrate with day to day operations, allowing staff to work remotely. Working with the right partners, fund managers can quickly establish, integrate and support new offices in other parts of the world relatively quickly. What is sometimes portrayed as a major undertaking does not have to be a challenge.

COOs confronted with a request to support the infrastructure of a new office in another country / different time zone have a number of technology-related issues to consider:

Which internal tasks need to be duplicated / supported on a day-to-day basis in the new jurisdiction and which systems will they need to access?

The move from private to public cloud has become an accelerated trend in the hedge fund space, particularly due to the implications of increased remote work due to the pandemic.  In 2021, 60% of businesses worldwide were operating with public cloud. Moving tasks across to a public cloud means that they do not need to be duplicated, which is hugely beneficial for businesses who are seeking to optimise operations.

For instance, public cloud platforms can help hedge funds augment productivity by providing a platform, such as Microsoft O365’s Flow. This platform can improve business processes as tasks become automated. A future trend that hedge funds will be embracing, which will be a step on from this current climate, will be the implementation of the multi-cloud.

This is fortunate for hedge funds because they do not need to take an ‘either/or’ approach when it comes to their IT infrastructure.

A multi cloud approach is one that will take the best features from both private and public clouds and use them to leverage a firm’s business operations so they run to the best of their ability, whilst also facilitating the varied working styles of employees and their broad range of needs when it comes to access and data security.

Funds are under increasing pressure from investors and the regulator alike to provide not only more reporting but reporting that is accessible digitally. Part of the remote working journey is to look at how SaaS platforms can be used to centralise information for better visibility. Long gone are the days when reporting via an Excel spreadsheet is acceptable. The FCA recently released an update about data quality in terms of regulatory reporting. Digitising workflows and improving data quality is a vital part of any COO’s role in today’s fund market.

Are adequate security protocols in place and how can they be monitored and supported on an ongoing basis?

In this new era of co-location, firms must take a decentralised approach when it comes to their cybersecurity, company privacy and data protection. It is no secret that the threat of cyberattacks, phishing and ransomware attacks are becoming increasingly more sophisticated and ever more dangerous in this new era of work where more people work from different locations.

The same technology that has propelled hedge funds to work remotely, is the same technology that hackers have learned to manipulate to cause malicious attacks on businesses. Due to this increased threat and change in working styles, firms must invest in decentralised cybersecurity.

Decentralised cybersecurity focuses on the access. With so many devices accessing centralised data and platforms, decentralising cyber makes sense, so each device or endpoint is secured against attack. The surface area of attack opportunity has increased massively with the advent of anytime anywhere working and funds must treat each work location as a satellite office and secure it accordingly.

Further questions that might need to be addressed include:

  • Are there any new markets or data feeds that need to be incorporated into the operational schedule?
  • Are there new service provider relationships that need to be integrated – e.g. new administrators, support for new asset classes, instruments and market trading?
  • Are there new regulatory oversight needs and reporting schedules / transparency requirements that have to be met on an ongoing basis, and under what timetable?

All of the above can represent a significant headache for COOs, especially as this can be compounded by the fact that such operations are being set up potentially in a different country. Service provider relationships may require brand new processes. Existing service providers may be tested when asked to support the new office, requiring new SPs are sourced for key tasks.

When it comes to technology solutions to meet these demands, COOs need to be confident that they have the support from IT providers who are independently certified, internationally experienced, and have the flexibility to adapt to these new challenges and work closely with the existing operations team.

IT solutions exist that can be rapidly rolled out, embedded in the fund manager’s existing operational infrastructure and can readily support new SP relationships.

George Ralph is Global Managing Director at RFA and Dave Shastri is Chief Strategist at Truss Edge

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