CAYMAN 2012 - HFMWeek

CAYMAN 2012
TECHNOLOGY
FUND SERVICING AND
SOFTWARE DEVELOPMENT
HARMONIC AND DR. DOUG MARTIN DISCUSS THE CHANGING APPETITE FOR RISK ANALYSIS AND REPORTING,
ALONG WITH THEIR COLLABORATION IN BUILDING COMPREHENSIVE RISK ANALYTICS SOFTWARE
Doug Martin
is Professor of Applied
Mathematics and Statistics
and Adjunct Professor of
Finance at the University
of Washington. He is
director of the applied
mathematics computational
finance programme that
includes an MS degree
in computational finance
and risk management.
Martin was chairman of
the department of statistics
during its early formative
years, and was a consultant
in the Mathematics and
Statistics Research Center at
Bell Laboratories for 10 years.
Harmonic is an independent Cayman Islandsbased
technology intensive fund administrator
and software and services provider. Our
in-house built system, FM3, is used internally
and also deployed externally to both fund
administration and non-fund administration
clients, including alternative investment fund managers, private
banks, pension funds, family offices and other institutional
investors.
Today, the number of external
system users far exceeds the number
of Harmonic internal users. FM3
boasts comprehensive middle- and
back-office functionality including
investor and portfolio management,
multi-currency accounting,
reconciliation, compliance, order
management, risk and performance
reporting, complex fees, complex
allocations and complex legal structures.
Evolution of the system has
been client driven and over the years
significant resources have been
committed to building an institutional
quality platform with ongoing
customisation that meets specific
client requirements.
INVESTOR DEMOGRAPHIC
The fund investing demographic,
once dominated by high-net-worth
investors has since been overtaken by institutional investors
including pension funds, endowments, multi-family offices
and corporations – financial and otherwise. A combination
of explosive growth in alternative assets, a new breed of investor,
an unprecedented macroeconomic and geopolitical
environment, a proliferation of financial products and an
abundance of portfolio credit financing, have profoundly altered
what stakeholders expect of fund managers and other
fiduciaries.
Fund of hedge fund managers and allocators who not
long ago counted only hedge funds as part of an optimised
fund of funds portfolio may now enhance and hedge with a
broad range of non-fund financial instruments. Needless to
say, said nouveau sophisticated investor class is demanding
more in the way of analytical tools, data relevance, enhanced
due diligence and service provider independence. With this
WE ARE ALSO DEVELOPING
DECISION SUPPORT
FUNCTIONALITY TO
ADDRESS CLIENT
CONCERNS OF PERCEIVED
DEFICIENCIES IN OFF-
THE-RACK COMMERCIALLY
AVAILABLE SOFTWARE
”
changing investor demographic, portfolio managers have
come under increased scrutiny from investors and regulators.
Investors are demanding more risk control in the management
of their investments, and these demands are being
met to a greater or lesser extent by a transition from a position
of opaqueness to a position of increased transparency.
The latter includes not only exposures and sometimes positions
but also more relevant returns-based risk analysis that
assures investors that better risk and performance analysis
are being used to improve portfolio
and risk management.
The transparency deficit is being
addressed via avenues such as administrator-provided
‘transparency
reports’, risk reporting standardisation
initiatives, such as the Open
Protocol Enabling Risk Aggregation
project, expanded regulatory reporting
such as Form PF, and in some
cases, replacement of collective
investment vehicles with managed
accounts.
Investors’ interests stretch well
beyond portfolio transparency
to include some level of counterparty,
operational, compliance and
portfolio management staff disclosure.
Advocacy groups such as the
Hedge Fund Standards Board are
also pressuring managers and other
participants to adopt industry best
practices that include enhanced reporting and a move towards
standardisation. This is all happening in the face of
ever-changing government regulation, de-regulation and
re-regulation.
INVESTOR DEMAND FOR TECHNOLOGY
Against this backdrop we are currently expanding the scope
and power of portfolio risk, performance analytics tools,
margin management and reporting features in FM3. System
enhancements include, among other things, various bespoke
client risk reports, support of OPERA reports, stress testing,
counterparty risk, reconciliation risk and collateral management.
We are also developing decision support functionality
to address client concerns of perceived deficiencies in
off-the-rack commercially available software and a wish for
a comprehensive platform that features front office tools
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