The hedge fund reconciliation process is not as simple as it would appear:
– Rising operational costs
– Lack of expertise with portfolio accounting software
– Key person risk (turnover; not having backups)
All you want are accurate, error-free reconciliation reports and back-office work that is done efficiently and budget-friendly for your organization, but so much gets in the way of doing what should be straightforward work.
Administrative matters slow down the process, and hedge fund operations managers need a proven and sustainable solution.
Hedge Fund Management Industry Trends for 2018
The forecast for the hedge fund management industry is mixed. Assets administered under hedge funds are at an all-time high for the 10th year in a row, and the industry will grow by 5.5% through 2018, according to predictions from Agecroft Partners.
But at the same time, Agecroft Partners states the hedge fund industry is over saturated, and nearly 90% of firms do not justify their fees, as many funds have underperformed. Many of these advisories at risk of shutting down.
Underperformance will cause investors to move their assets to more competitive hedge fund managers, and rising expenses and falling revenues will put pressure on an RIA’s bottom line.
Agecroft says outsourcing will be an increasingly attractive option for money managers as a way to stabilize and improve profit margins. The quality and quantity of fund administration outsourcing companies for hedge funds is growing, providing investment managers with HR, IT, compliance and back-office services.
Are you are a candidate for hedge fund operations outsourcing?
Hedge Fund Reconciliation Process: Reasons to Outsource
Operational costs go down
It is not uncommon for hedge fund and asset managers to reduce their annual operations expenses by one-third, sometimes by more than one-half, thanks to outsourcing their middle- and back-office functions.
And right off the bat you avoid hiring costs. A good headhunter will charge 20-25% of a newly hired candidate’s starting salary, according to Investopedia. In other words, you’re paying recruiting fees worth nearly three months of salary before the new hire has even started.
Once you’ve successfully onboarded the new hire, now you have to pay for medical and dental insurance, plus the occasional bonus and perks.
With hedge fund operations outsourcing, you avoid all of the costs mentioned above.
You simply pay for what you need: labor.
Portfolio accounting experts handle your software
When you outsource, you get a team of reconciliation reporting specialists experienced with your software.
Admittedly, most portfolio accounting systems are not user-friendly for the average person. There is a steep learning curve, and with so many features and functions, it can be intimidating running the software.
One wrong move when processing corporate actions can result in a wildly inaccurate report, and downloading unnecessary data can be extremely costly if you hit the wrong button or don’t set the download preferences properly.
Even if your organization has run the software in-house, sometimes it can take a few weeks before the new hire is functional with the systems and able to work without requesting help from other associates or the operations manager.
When outsourcing the hedge fund reconciliation reporting process, the team of experts will produce the reports you need right out of the gate.
Operations managers no longer worry about turnover issues
What happens when one of your key personnel leaves? When the ultimate expert in your back-office is gone, your operational performance will suffer, as one of our previous blogs highlighted.
With that hole to fill, now you have to restart the hiring process, which isn’t cheap.
Turnover hurts, and the risk is reduced when you outsource, as you will not have to worry about replacing key back-office reporting personnel. Hedge fund outsourcing companies will not only will assign a lead to perform your reconciliation needs, but they will also have a bench of capable backups.
Hedge Fund Outsourcing Makes Sense
Upward pressure on operational costs and downward pressure on commissions and management fees are reason alone for hedge fund managers to give outsourcing a fair shot.
In addition, a team of portfolio accounting software experts are available and will ensure your reporting needs are taken care of every day, meaning you don’t have to worry about turnover issues and assigning backups in the event a key team member is out sick, on vacation, or has left your firm.
The threat of hedge funds shutting down is real, and outsourcing is a way to control costs and help keep your firm in good financial standing.
At a minimum, talking with hedge fund reconciliation outsourcing specialists is a good way to see in what ways your organization can benefit.
Empaxis is a leading provider of middle- and back-office outsourcing services for asset managers and hedge funds.