As hedge funds evolve from single-strategy investment vehicles to multi-strategy, they enter a twilight zone of multiple, and in some cases incompatible, execution, risk, and accounting systems.
“This is a critical juncture in the lifecycle of a fund,” Will Geyer, global head of platforms at ITG Group, told Markets Media. “Adding a fixed-income strategy to a long-short vehicle or investing in commodities for the first time is a chance to attract new talent and assets, but it can also introduce inefficiencies that can hinder the growth of the fund for years to come.”
The operating platforms that hedge funds use need to be more efficient in the way that they trade as their mandates expand and change.
“We’re working to make that a simpler process,” Geyer said.
The objective for hedge funds, as tradable assets expand, is “to be able to trade dynamically across the world across asset classes to improve efficiency, and to ultimately be able to achieve better trading outcomes in the marketplace," said Geyer.
Scott Kurland, head up of ITG’s Platform Solutions Group, said that hedge funds have a choice when adding asset classes. "Multi-asset hedge funds can either operate with a patchwork of legacy systems across each individual asset class, or work with a sleek, integrated single system," he said. "As a hedge fund, you want the flexibility to be able to move and shift quickly between these asset classes, across them, or to manage them simultaneously.”
Kurland added, “When you're dealing with disparate systems, it's often difficult to do that, especially if you're trading equities with a simultaneous FX hedge or a futures or option hedge that you're trying to put on to mitigate risk or achieve more outcome without incurring more risk.”
An example of an asset class that’s been resistant to blending in easily with other asset classes is FX. ITG has rolled out an FX TCA (Transaction Cost Analysis) product that “provides transparency around the quality of the fill that you're getting when you trade a foreign exchange instrument.” Geyer said. “People historically haven't had the ability to gather that data and to analyze it in the same way that they have equities. Now we have cracked that nut by being able to synthesize large quantities of data and max out the execution result to provide customers with transparency around their execution-experience quality they getting from the different venues.”