A Happy Alliance
Despite the current satisfaction with their outsourcing relationship, the decision to outsource to DataArt did not come easy for HedgeSpeed. Since the company is only two years old that started settling only in the last quarter, they were looking for a partner who would devote time in understanding their needs, and wouldn’t be influenced by the fact that it worked with only 10 employees and two consultants. Also, the provider needed to be one that could not cost them an arm and a leg to be outsourcing to them.
“Outsourcing has it’s own unique challenges that have to be managed — time, distance and even verbiage,” says DiRocco when asked about the challenges one faces in outsourcing services. But today, it is a happy customer-provider alliance. DataArt is satisfied that they are not doing another generic IT project in the financial-services space, and HedgeSpeed is a satisfied customer.

“I like the personal attention we get at DataArt. Remember we are a small firm, and would not necessarily garner the attention and resources DataArt provides us,” adds DiRocco.

Time is yet another prime concern for financial markets as dynamic as hedge funds. Being a little lax may mean loss of thousands for the investor. “In the hedge-funds market, you should be able to reduce the time between product vision and implementation,” says Alexei Miller, EVP, DataArt. And now that most of the dealings happen over the wire and the funds need to be managed on a real-time basis, the faster the better. “The whole premise is acceleration,” says Miller.

Who’s servicing Hedge Funds

Advent Software Algorithmics Beauchamp BISYS Alternative Investment Services CITCO Fund Services Citi Practitioners (acquired by Capco) Eze Castle Fortis Prime Fund Solutions GlobalOp Goldman Sachs HSBC's Alternative Investment Services IFS, a State Street Company Imagine Software Indus Valley InfoHedge Technologies Investors Bank & Trust JP Morgan Morgan Stanley Omgeo Paloma Partners Paladyne Systems RandomWalk (acquired by Accenture) RFA SS&C Fund Services UBS Fund Services Vantage Reporting Viteos Fund Services

Though it is only a few months to the deal and a little too early to measure success, HedgeSpeed has already begun to see signs of improvement. In fact, both the customer and the provider are confident that they will be able to squeeze the time of delivery. The deal targets 30 to 50 percent saving on time and roughly the same range of cost savings for HedgeSpeed.

Going forward, both the companies are likely to extend this cooperation into the customer-support space.

Outsourcing Opportunities for Hedge Funds
The technology infrastructure required to manage funds can either be owned or outsourced, though it requires careful evaluation on the part of fund managers and investment planners who need to make the choice. While going with one would mean bearing the cost of an equipped and skilled technology team, siding with the latter would mean trusting the technology/process partner for sharing the data. And the hedge -funds industry is hard pressed to take this decision fast enough to meet the pace of rising competition and capital-market swings. And the cost differential and up-to-date technology make outsourcing the obvious choice.

The hedge fund industry, though a late starter in services outsourcing is now not only exercising the choice of application and IT infrastructure and processes, but also business processes outsourcing. Some of the business processes can improve fund efficiency including daily cash management, collateral management, flash P&L reporting, risk reporting, and cash and position reconciliation.

To ensure smooth trade and reconciliation in a dynamic market where investments need to be made at the right time and in the right fund,hedge-fund administration  procedure can be divided into three levels of operation — front, middle and back office. The front-office operations include various active trading and liquidity-management solutions that form the visible  link between the investor and the market. The post trade but pre-settlement operations that form the middle-office include liquidity analysis, stock loan, margins and derivatives, asset-management solutions, analytics and cash management. Accounting and tracking operations comprise the back office.

As most of the limelight is hogged by the fancy front office and the plain and simple accounting processes, most of the technology usage is limited to these areas only, and not to middle office where opportunities lie in abundance. Infrastructure and technology for hedge-fund managers is limited mostly to the back office (accounting and tracking operations) and the front office (trading and portfolio-risk management) operations.