subject: Hot Buttons for Hedge Fund Operations [print this page] Reconciliation: All assets, liabilities, open positions and cash flows need to be reconciled against counterparties, internal
books and other service providers (For example, custodians). This process is often termed as rules and procedure driven,
while in practice, it needs to be investigation-driven. Funds often invest in specialist back-office resources and systems to
ensure issues are highlighted ahead of time and the same can be addressed. However, the challenge is to run this
function across extended hours of operations, in multiple time zones and across different market timings. External service
providers can provide significant impetus to this function from the start by drawing on existing expertise on various
functionalities and asset classes. They can manage a rigor in this implementation, which ensures gaps / breaks across
various books are identified and highlighted.
Reporting: Funds are required by their investment agreement to report their investment activity and outcomes thereof, at
designated intervals to the investors and other stakeholders. This process requires aggregation of data across from
various sources, validation of the same and creation of reports per agreed formats. The challenge for funds is typically the
periodicity of this activity. Leading providers can create scalable and flexible operating models to adhere to such reporting
requirements and also increase the depth of reporting.
The outsourced model when applied to hedge fund operations can create multiple efficacies, apart from addressing the
ever-growing concerns around transparency, operational risk and enhanced compliance.
