Corporate Q&A
Hedge Investment Strategies
Innovation Applied
Seventh in a Continuing Series
By Russell Jones
Financial Writer
Hans Hufschmid, chairman and CEO, GlobeOp Financial Services.Hans Hufschmid, chairman and CEO of GlobeOp Financial Services, looks
at the global trends shaping hedge fund administration and derivatives
trading.
GlobeOp is a leading, independent financial services company providing integrated middle- and back-office, administration and risk reporting services to asset management firms, including hedge funds, private equity firms, banks, insurance companies and pension funds. Its third U.S office opened in Hartford, Conn., in 2007.
Q. What are the key trends and issues driving the hedge fund and derivatives market in the near term?
The three major short-term trends for hedge funds are investor driven, while one of the major issues for the derivatives market is administrative. Institutional as well as individual investors are increasingly concerned that current hedge fund performance, risk and portfolio data is provided solely by fund managers. To attract and retain investors, hedge funds are under pressure to:
- Significantly improve data transparency in reporting portfolio activity and fund performance;
- Provide data that is independently verified;
- Implement professionally structured administrative processes to reduce operational risk.
Hedge fund participation in the derivatives market has significantly increased the volume of third party trades requiring timely confirmation and settlement to ensure portfolios are accurately valued. Unfortunately this fundamental activity often continues to use the time- and labor-intensive process of generating and faxing large volumes of paper between counter parties.
Q. How is GlobeOp responding to these requirements?
GlobeOp's leadership team is unique among fund administrators in our
extensive Wall Street experience. We come from the banking, hedge fund,
insurance and financial technology industries. We use that experience to
develop leading edge middle- and back-office and risk reporting solutions
into an extensive portfolio of fund administration products and software.
Robust, reliable and transparent systems are combined with a global network
that delivers scalability and time zone optimization. This enables our
clients to free up resources and technology to focus on investment strategy
and market trading activities while reducing operational and settlement
risks.
Because we have both fund and investor clients, we most recently combined
that understanding with our Wall Street experience and financial technology
expertise to create a new Web-based performance-reporting service, called 'GoBook.' It enables hedge fund managers to communicate independently
verified fund performance data to their investors. Investor access to data
remains completely at the discretion of fund managers. High-level portfolio
analysis includes data decomposed into P&L, cumulative P&L, NAV and gross
NAV. It can be further benchmarked against investment types, industries or a
range of seven indices, including the Dow Jones, S&P and NASDAQ. Fund
managers can also post their own comments, flash performance data, monthly
reports and fund newsletters to investors, further improving the
transparency and timeliness of investor communication.
We process approximately 4 percent of the daily OTC derivative contracts traded globally 'the equivalent of a major bank' through our GoOTC (a trademarked name) service, which provides clients with dedicated Web-based, outsourced support for OTC derivative trading, settlement and portfolio maintenance. In addition to processing OTC contracts to high standards with full transparency, the GoOTC service also provides on-line access to critical data for the client\'d5s risk managers and financial control teams. And in addition to a scaleable, efficient infrastructure, clients benefit from regular upgrades as the OTC market continues to develop.
Q. Why a Hartford office? What is its main focus?
Connecticut is a logical location for our U.S. expansion because its hedge fund industry is growing steadily, and the state has the highest concentration of financial managers in the country. Many of our current hedge fund clients are based here or in the nearby region. And the increasing interest of institutional investors in adding hedge funds to their portfolios parallels our longer-term growth strategy of providing clients like pension funds and insurance companies with tailored solutions from our proven suite of advanced fund performance reporting products.
As the newest office in our global client support network, the
20,000-square-foot Hartford office will mirror the middle- and back-office
fund administration activities of our existing six offices and will
initially employ approximately 150 people. At the end of the U.S. trading
day, our technology enables them to seamlessly link with our three offices
in India to maximize the time zone difference and provide clients with
overnight service on their daily trade P&L, reconciliation and monthly NAV
reports.
