Capitalising on Latin America in 2020, and Beyond

By Charina Amunategui

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As investors consider their near-term investment goals and long-term view for the coming decade, they may want to assess some of the globe’s more disregarded corners to better pinpoint return opportunities. This is especially true in our increasingly uncertain market: volatility factors are once again gathering steam with coronavirus breeding instability and Brexit unfolding. Latin America offers a solution.

Latin America, sometimes overlooked by money managers, can provide a wealth of opportunities to investors committed to impacting their bottom line through long-term growth and high short-term yields. Much of Latin America’s growth comes from the alternatives space – countries like Brazil are experiencing sustained success in infrastructure, while private debt in the real estate sector is yielding strong returns in Mexico – and talented local money managers are realising the region’s potential for offshore investors.

Beyond making the correct investment decision, though, it is important to work with a fund servicing partner who will help best navigate the Latin American market. Your fund servicer should be a partner in decision-making; they should be experienced and entrenched, familiar with the region’s unique volatility and risk factors, and alert to budding opportunities across its many countries. With the right servicer and investment strategy, Latin America offers investors a long runway of returns in an emerging market.

Finding Alternative Opportunities

Alternatives are in focus in Latin America as countries look to build up and modernise their infrastructure, real estate and energy systems. As a result there is heavy deal activity, presenting the well-researched investor with worthwhile opportunities.

In Brazil, President Jair Bolsonaro has made infrastructure a priority. His government has greatly expanded their role in supporting investment with a particular eye on boosting foreign cash inflows. In fact, they’ve outlined a plan to increase infrastructure investment by $65 billion (£50 billion) per year by 2022. This effort is aided in large part by the Investment Partnership Program (Programa de Parcerias de Investimentos or PPI), which oversees priority infrastructure projects. And the PPI has already found success, with approximately $58 billion in projects currently being deployed – much of this cash coming from international capital markets. PPI is continuing their efforts through airport, railway, and shipping port auctions to foreign buyers.

To further increase foreign investor participation, Brazil also hopes to change the primary financing methods of major traditional energy, renewable energy, and transportation projects. In the past, over 50% of projects in each sector were financed by the National Development Bank (BNDES). But now Brazil would like the BNDES to act as a facilitator for international commercial banks, private banks and fund financing, further emphasising their support for developed market investment.

Mexico also provides an interesting consideration for investment in Latin America – and large European and US institutions are taking notice. For example, Credit Suisse expanded their Latin American operations in 2018 through the Mexico Credit Opportunities Trust II, which supplies long-term credit to mid-sized enterprises, and in 2019, BlackRock and KKR pursued significant private equity fundraising campaigns with Mexican pensions funds.

Mexico is receiving attention from the private equity world thanks to enticing entry multiples and a long runway for GDP growth, and high interest rates provide attractive compensation for lenders. In addition, private debt issued to real estate builders of commercial properties in Mexico City has attracted robust institutional investor interest and generated meaningful returns. Mexico has the chance to shake off a recent economic slump, and certain alternatives vehicles stand to profit.

Using the Right Partner

The correct investment strategy is best empowered by a capable fund service provider – particularly in markets with high barrier to entry, such as those found in Latin America. And, while a service provider might have a complete and trustworthy practice in the US or Europe, this does not mean they will have the competency and experience to navigate the Latin American market. The region remains one where reputation and roots are valued, where a local strategy and vision are necessary to make the best investments, and where sophisticated services can offer investors meaningfully higher returns. As an investor in the region, you need a fund service provider who will equip you with the tools to succeed.

Many Latin American countries come with idiosyncratic risk and compliance factors that require fund servicer expertise. For example, you’d want your servicer to regularly and thoroughly conduct AML/KYC checks (anti-money laundering measures) in accordance with the offshore jurisdictions where your funds are domiciled. Additionally, given the unusual economic history of the region, a service provider with long-standing roots in Latin America will be better positioned to synthesise and contextualise new information and to evaluate the performance of an asset. A longstanding commitment to the region also implies the ability to weather a downturn.

In Latin America, a service provider must be a true specialist. They need to understand the local and international regulations relevant to various types of fund structures, offshore fund service requirements, and more. This background will help you trade with a greater variety of sophisticated instruments and capture upside unavailable through less-entrenched servicers.

In many cases, investors have regarded the region warily for good reason: too many Latin American countries carry a history of political instability, fiscal irresponsibility, corruption and crime that has whipsawed asset prices routinely over the decades. But the impact of these risks is largely dependent on the leadership in place, and countries like Mexico and Brazil both tout business-friendly, tough-on-corruption presidents.

With shrinking opportunities for robust returns in the larger developed markets and growing geopolitical turmoil on the horizon, more investors are turning to Latin America. Alternative investments, whether in infrastructure, private debt, or private equity, have shown promise in multiple countries across the region. Partnering with expert service providers will help navigate the local landscape which can provide increased operational scale and efficiencies.

By Audrey Nangle and Lorraine Rooney
with assistance by Syl O’Byrne

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Reform to limited partnership legislation should make Ireland more attractive as a domicile for private market investments

Ireland remains one of the most popular fund domiciles in Europe, where alternative investment funds and UCITS funds are leading the charge with all-time highs in assets under management across many fund strategies.

But, despite its reputation as a leading European fund domicile, the number of limited partnership alternative investment vehicles (LPs) domiciled in Ireland remains low, with AUM behind those of comparable domiciles.

This is set to change, however, with the implementation of amended LP legislation, contained in the Irish Investment Limited Partnerships (Amendment) Bill of 2019. The bill will make Ireland a more attractive destination for LP structures and facilitate the growing world of real estate, infrastructure, private equity and private debt investment vehicles moving onshore.

Irish regulated LPs are currently established under the Investment Limited Partnerships Act of 1994 (the 1994 act), with unregulated LPs being established under the Limited Partnerships Act 1907 (the 1907 Act). The 2019 bill deals with amendments to the 1994 Act only.

Context

The Irish LP structure, available under the 1994 Act, never caught on and is considered outdated because of restrictions it imposes on general partners (GPs) and LPs. These restrictions render the 1994 Act out of sync with more modern LP structures available in other European countries including Luxembourg and the UK.

The bill addresses the shortcomings of the 1994 Act, incorporating commonplace LP fund structure features of competing fund domiciles, as well as introducing innovations to the LP structure generally. These reforms ensure that Ireland has a fit-for-purpose LP structure – a compelling and credible alternative to offer fund promoters and LPs to participate in an aligned Irish LP investment vehicle.

Key provisions

  • Creation of safe harbour for certain activities: investors will be allowed to engage in a range of protected activities – for example, participate in advisory committees – without losing their limited liability.
  • Amendments to voting rules: a LP agreement will be capable of amendment by majority vote provided that all investors are notified in advance of the amendments and the depositary confirms the change does not prejudice the economic interests of investors.
  • Alternative foreign naming: promoters will be able to translate the LP name into a foreign language (including foreign language characters) for distribution in overseas jurisdictions.
  • Change of general partner: the update in the 1994 Act will allow for the creation of statutory novation of assets and liabilities – simplifying and accelerating a change in GP.
  • Umbrella LP structure: the new legislation will permit the establishment of umbrella fund structures – a single fund composed of multiple, segregated liability sub-funds – that can deploy distinct liquidity, investment strategies and tax classification for investors.
  • Withdrawal/distribution of capital: once enacted, the LP legislation will no longer require the GP to certify that it is able to pay its debts as they fall due, upon the return of capital.

Implications of the reforms

The amended LP structure will change how regulated LPs operate. Most significantly, the alterations to the liability rules increase the commercial appeal of the Irish LP to fund promoters and investors.

Along with the limited liability safe harbour provisions, investors will also have a say in the management of their investments. They will be able to appoint board representatives, serve on advisory committees and participate in the investment process. Investors will no longer be liable for the entire LP liabilities; investor liability will be capped at the level of their capital commitment/investment. Under the 1994 Act, management activity exposed investors to the entire liability of the LP in excess of their individual capital commitment. This will be removed once the bill becomes law.

There are cost savings associated with maintaining an umbrella LP fund structure, with separate sub-fund strategies, as opposed to maintaining numerous LP structures with separate investment strategies.

On an administrative note, the new voting rule provisions will materially boost decision making efficiency for amendments to investment limited partnership (ILP) agreements. Whereas previous changes to ILP agreements and certain investment decisions languished in the approval pipeline, now the practical implementation will move more swiftly.

The ability to use alternative foreign names (and critically foreign alphabets) is a unique feature which increases the distribution, marketing and branding appeal of the Irish LP in markets such as China, Japan and South Korea, This is a coup for fund promoters to attract investors, weighing up their choices, in these jurisdictions.

Opportunities from Brexit

Beyond the changes within Ireland, forces abroad might bolster the appeal of an Irish LP. In the UK, Brexit will lead many LPs to move domiciles to the EU, with Ireland standing to gain. Fresh limited partnership reforms, familiarity of business culture, shared language, a common-law legal system and an advantageous time zone all facilitate an easy switch for those promoters already doing business in the UK.

In a post-Brexit European fund landscape, the Irish LP structure will be the only remaining common law English speaking jurisdiction where English case law LP jurisprudence is persuasive, an important point not to be overlooked from a resolution and litigation perspective.

Review of the 1907 Act

Noting that the 2019 Bill deals solely with regulated LPs, the 1907 Act is also undergoing review. Once both the 1994 Act and 1907 Act have been modernised and aligned, Ireland will be able to compete equally with other fund domicile rivals like Luxembourg. Ireland will continue to provide a service provider network with deep ties to large markets like the US while adding unique appeal to international markets, particularly Asia, as a result of the signing into law of the bill, making it a top destination for all fund structures.

Taken as a whole, the bill, when it comes into law in the first quarter of 2020, will modernise and align the Irish LP fund structure with comparable jurisdictions and showcase Ireland as a fund domicile of choice for private market fund vehicles. Besides the benefits of Brexit, several other factors look set to enable to LP reform to push assets under administration higher in Ireland.

These include the ability for promoters to establish umbrella LPs with segregated liability between sub-funds, greater participation in investment decisions and protection of limited liability for investors. These will be combined with the elimination of administrative voting hurdles to amend the LP agreement and the ability of promoters to brand and market an Irish LP using a foreign name.

By Annette Thoma

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There is no denying a global shift toward regulating privacy with new legislation such as General Data Protection Regulation (“GDPR”), the California Consumer Privacy Act (“CCPA”) and the Brazilian General Data Protection Law (“LGPD”). With this, an increasing number of trends are emerging with respect to privacy legislation comparative to the landscape five years ago.

There is a wide divergence in how different countries, even regions, legislate for privacy. This is not surprising as the call for privacy legislation is driven by historical events and this of course means the needs are often different. Some countries and regions are taking more of a consumer protection stance, such as CCPA, whereas others regulate specific sectors (Health Insurance Portability and Accountability Act and Personal Information Protection and Electronic Documents Act for example in Canada).  There is the drive to regulate technological development and lastly, principle-based laws using GDPR as a blue print.

What is interesting is the development that the private sector is encouraging governments to implement data protection legislation, as opposed to the other way round – generally we see regulation playing catch-up with consumer / business privacy expectations.

Globally the focus is on data protection, another element is privacy. Privacy is a very broad area and what is understood as privacy seems to be a cultural matter. In Europe privacy deals with the right to a private life, meaning a life without interference by the state and others. It is guesswork but the future will lie in addressing the right to privacy and not only data protection.

Privacy v Financial Laws

Many global organisations with exposure to different financial regulators and an increase in regulatory guidance find themselves in a balancing act. The same applies to data protection laws – the goal posts keep moving through the emergence of new guidance, industry best practice and case law as well as through organisations’ maturity. 

It is pivotal for firms to work alongside a strong Compliance team and draw on their expertise to fully understand what a particular piece of regulation requires and how they can apply the principles of data protection. Commonly found useful here is the principle of data minimisation. Oftentimes, a lot can be done to minimise the data requested for the purpose of a particular regulatory obligation. At times it might be easier to take a more sweeping approach but data minimisation stops organisations from doing so.

Asking for the data they absolutely need and not the data they ‘may’ need is crucial. It may mean having to request more information later but it lets firms adhere to data protection laws as well as financial laws such as Anti-Money Laundering. 

In addition, a good source of information is the records of processing activities. Conducting periodic reviews on these allows companies to continuously ascertain if something in a piece of regulation has changed and if they are doing things in line with all principles of data protection.

Privacy by Design

Privacy by design through the vendor management process is an area which will get increasing attention as many companies will try and mature in the near future. The increased attention is not just due to data protection laws but also due to increased focus by financial regulators on supply chain management.

Most companies started off by implementing the bare necessities such as appropriate contractual requirements and maybe a risk assessment at an onboarding stage. You have to start somewhere. As companies make a move from compliance to accountability, their expectation on any third parties will increase to understanding how they can get more assurance through the life of the vendor agreement.

Clients are increasingly interested in service providers who have strong data protection programs in place and ensure this through contractual obligations, due diligence and on-going assurance programmes.

Generally, all new service providers have to go through a risk assessment process but they should also go through a pre-data protection impact assessments (“DPIA”) screening process. Strong collaboration with other support functions such as vendor management, operational risk, information security, compliance and legal, will allow them to take a wholesome and holistic approach.

Of course, this can be quite a time-consuming process but let’s not forget that businesses need to take a risk-based approach and some new third parties may require lengthy discussions whilst others are straight forward. Nonetheless, taking this approach lets the client demonstrate that they have given each and every new vendor sufficient consideration.

No job is completed without regular monitoring and risk management to provide on-going assurance. If this is done by the company, the provider or a third party, there should be some level of independent assurance through audit. This concept is not new at all and can be seen in particular in the information security space and through System and Organisation Controls (“SOC”) 1 or SOC 2 reports.

Measure and Report

To date, firms have been reporting consistently on their privacy programs across key areas such as subject rights exercised, breaches, DPIAs and associated risks.

Now, they are focusing on implementing a privacy management framework allowing them to systematically assess their maturity and provide them with a roadmap to further mature their privacy posture – this is with a focus on continual assessment and improvement. This will demonstrate their drive to strong and ever evolving privacy throughout their organisation.

When implementing such a framework it may be beneficial to look to other functions within the organisation which may have already developed something similar, such as information security, where there are a number of parallels and shared objectives. This streamlining may assist in obtaining buy in from the top and make it easier to secure funding and implement top down.

Looking Ahead

2020 will be a busy year for data protection professionals. Whilst many companies will be coming to grips with CCPA, others will be working hard on keeping up with GDPR and improving their companies’ maturity as we see fines issued and standards clarified through the emergence of case law and guidance.

It is clear that data protection is here to stay. It is therefore pivotal that companies continue to invest into privacy programs and strategies so that they can continuously improve their compliance and accountability.

By Kristin Castellanos

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Whilst the hedge fund industry is dynamic and always seems subject to new regulatory requirements and industry guidelines, one thing has remained constant – investors seek the highest returns possible for their given risk profiles.

We have recently seen that more and more funds have been attracting large institutional investors. Surveys of various industry players, including fund managers, administrators, brokers, custodians and investors, foresee that future hedge funds will experience a shift in their investor base, whereby far more investor monies will be sourced from institutional investors rather than high-net-worth individuals.

For fund managers, this may translate into a shift in investor requirements to some degree, from those who want superior returns to those who want more emphasis on risk reduction.

With this in mind, there are two areas where we think hedge fund managers will especially need to focus to ensure future viability:

Innovation: Finding new and efficient ways of managing data that effectively reduce the time and resources spent on non-core investment activities and promote the enhancement of performance-metrics reporting. These will be key objectives for funds to ensure sustainability in the market and retain investors’ confidence.

Cost-containment through strategic partnerships. Collaborating with service providers will be important to ensure that costs are managed to the greatest extent possible.

We have observed increased pressure from investors for improved returns and lower fund expenses, which has led some managers to reduce or eliminate management and/or incentive fees.

With lower fees to support risk management and investor reporting, many managers have chosen to collaborate with a strategic vendor, such as a fund administrator, to enhance reporting to investors, regulators and other stakeholders. This is of particular importance for smaller managers, where person-to-person interactions are of greater significance.

One example of innovation and strategic partnership is the growing trend of fund managers to outsource the calculation of foreign exchange hedging for non-base currency classes.

As hedging the currency risk of these classes (or feeder funds) is essential in terms of protecting investors from the adverse impact of exchange rate movements, this has become an integral part of a fund’s risk management process.

Even so, the FX hedge calculation and execution process is arguably a protectionist measure and does little to contribute to achieving alpha returns.

Historically, many managers have addressed this risk by making a significant investment in back-office resources and technology. But recently, managers have become more and more comfortable outsourcing the process to an administrator that has the expertise and systems to manage it for them.

Given the high level of inherent risk and readily available data custodied with the administrator, this is one area where fund managers are becoming increasingly willing to outsource. It therefore poses an opportunity for experienced administrators to leverage their technology infrastructure and knowledge to provide an offering that helps clients achieve their objectives.

In addition to the core foreign exchange (FX) services that have been available to clients for many years, some providers are offering enhanced FX hedge calculation services as part of their offering, increasing the scope and quality of the overall FX product suite.

Product enhancements of this scale and scope require significant investment in not only technology development but also the technical training of operational staff to ensure that clients’ bespoke needs are met regardless of currency, trading frequency and intra-period hedge adjustments.

FX hedging services, combined with administration, custody and banking, can help clients leverage data and contain costs. When combined with fund financing, it can also result in efficient use of capital.

In summary, investor pressures, increasing back-office costs, and innovative risk management products developed by fund administrators are giving fund managers more and more reasons to consider outsourced, value-added options. FX calculation is one example of how managers can leverage their administrators to benefit from lower costs and less strain on their funds’ liquid resources.

By Veronica van der Hoeven

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Veronica van der Hoeven, Head of People Strategy

Poorly matched cultures can sink even the most promising merger or acquisition if they’re not joined effectively. Poor cultural integration reduces morale, hurts productivity, pushes out talent and saps profitability.

Fusing two cultures effectively is a delicate and difficult undertaking, with too much at stake to be carried out incorrectly or approached haphazardly. To successfully blend two cultures during a merger or acquisition, organizations need to build a cultural integration plan pre-merger, with senior leadership buying into the process wholeheartedly and seeing it through to fruition.

Recognize the importance of your company’s culture

For this to happen, corporations must first recognize the central role culture plays, and the significance culture assessment holds during the due diligence and integration stages of the merger or acquisition process. This is often where trouble starts.

A global study by Aon Hewitt showed that nearly half of 123 organizations ranked culture assessment and integration in their top three priorities in due diligence process, with 30 percent placing them in the top two priorities. However, during the integration stage, only 24 percent rated cultural integration in the top two priorities.

Put more bluntly, a McKinsey article stated that 95 percent of executives agreed that post-merger integration only succeeds if both cultures fit, while just one quarter attributed integration failure to poorly matched cultures. Too few executives appear to understand the role culture plays during the integration process.

Keep it tight. No, keep it loose.

McKinsey said an organization’s culture should aggregate its vision, the values that guide employee behavior and the management practices, norms and attitudes that characterize how work gets done.

As visions, values and management practices vary among companies, successfully joining any two cultures together often entails avoiding clashes and bridging fault lines. The biggest tensions between two companies often stem from a clash in “tight” and “loose” cultures, according to a Harvard Business Review (HBR) article.

A tight company culture prizes predictability, routine, organizational efficiency and consistency; they maintain cultural traditions through rigid rules and processes. By comparison, fluid and creative loose cultures mostly shun rules and encourage new ideas. The stark differences in these cultures often erupt when they’re joined in mergers or acquisitions.

HBR studied the matter more closely, aggregating numbers on more than 4,500 international mergers from 32 different countries between 1989 and 2013. On average, they found that companies battling divides between tight and loose cultures saw their return on assets fall by 0.6 percent three years after the merger, or $200 million in net income per year. For more pronounced mismatches, the decline grew to $600 million.

McKinsey noted, corporations with more aligned cultures and stronger organizational health generate on average three times the shareholder returns of companies that lack these features.

Leadership must take the lead

To succeed with cultural integration post-acquisition or merger, senior leadership should take a number of steps when designing a cultural integration plan. An important but frequently missed first step is to appoint someone to lead cultural integration on behalf of the senior leadership team with direct access to the CEO to ensure culture stays on leadership’s agenda. Without this, senior leadership often find themselves ill-equipped to navigate the integration process and are more at risk to endure cultural clashes.

While there’s no single approach to constructing a cultural integration plan for a merger or acquisition, these general tips and guidelines should be considered:

Due Diligence and Culture Audit

  • Include culture as part of the due diligence process to gain a good understanding of it pre-acquisition or merger
  • Determine, before agreeing on the future culture, how wide the current gap is between the existing cultures of both parties; some ways to achieve this are:
    • conduct culture interviews with management and staff
    • run employee surveys to provide an anonymous culture temperature check
    • use employee focus groups to identify differing perceptions of each organization

Setting the Direction and Cultural Agenda

  • The CEO sets the vision for the newly merged or acquired company and the values that flow from it. This is crucial, as it provides direction and a sense of purpose
  • Set the cultural agenda, understanding that the combined future culture will require time, consideration and the commitment of all senior leaders and Merger and Acquisition stakeholders
  • Understand that the process of selecting the new senior management teams sends a strong message to employees around future culture and expected behaviors
  • Lock in key talent early in the process

Teaching Desired Behaviors

  • Identify the desired behaviors and expectations that align with the expected values around leadership styles, how work gets done, decision making, innovation, governance and employees
  • Host workshops or team-building sessions for the most senior to the most junior level staff to communicate and provide training on these behaviors and expectations
  • Design Human Resources programs and practices to further ingrain these behaviors and expectations

Enroll and Empower Leaders at All Levels

  • Empower middle management to assist cultural change as employees tend to follow their immediate manager’s example, even when that behavior is at odds with policy or procedure
  • Inform and equip leaders with the required resources to actively implement a successful cultural integration
  • Enroll leadership from both organizations to model behaviors, drive change and address any developing power conflicts, uprisings or turnover rapidly

Overarching Messages as You Progress

  • Complete the assessment phase in a timely manner, then enact planned changes to organization structure
  • Manage employee engagement proactively using a communication plan that monitors and measures results continuously
  • Communicate progress and the importance of the process regularly to all employees and additional stakeholders; listen to and address their concerns

Understand that even the best conceived cultural integration plan can fall apart once the deal is signed, as priorities change and day-to-day business demands take priority. Many leaders do not fully grasp the importance of cultural integration and the compounding effects of its failure until it’s too late.

It can take several years for mindsets and behaviors across organizations to adapt to changes in culture. However those shifts can only happen if companies plan accordingly, which means prioritizing culture in the due diligence, planning and transformation stages. Developing the right approach to integrating cultures beforehand can be the difference between a merger or acquisition that brings out the strengths of both companies and one that leaves the combined company weakened and struggling to find its direction.

By Paul Skinner

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Paul Skinner
Head of Fund of Hedge Funds

Given the changing landscape in the investment management industry and the increased scrutiny on fees, investment firms and their administrators are focusing more on operational efficiencies that can create cost savings.

One area that fund administrators are starting to capitalise on to drive down costs and improve efficiency is through the use of Robotic Process Automation (RPA). RPA can be used to remove the manual burden of routine tasks by automating them within a digital system. A task that might take a human a few minutes to perform can be done in seconds by RPA, with no physical footprint and a 24-hour presence. This allows the human user to refocus their skillset and efforts and increase their own productivity, as they no longer have to perform routine repetitive tasks.

What is robotics?

Robots are present in our everyday life and often go unnoticed. A customer call center, an online order getting processed or even an automated supermarket checkout are all examples of Robotics at work. As we look forward to the next 10 years, Robotics will have a significant impact on all industries; and financial services will be no exception.

When looking at Robotics it is important to make a distinction between RPA and Artificial Intelligence (AI). RPA is typically used for routine tasks that are methodical, repetitive, rule-based, and don’t require thinking. Whereas AI is used for non-routine tasks that require learning and problem solving that would replicate the intellect of humans.

Within fund administration, RPA has been the chosen first step in the use of Robotics, as it is quick to implement, relatively low cost and can provide immediate benefits to a mature industry. That said, the investment management industry is already exploring ways to implement AI in combination with RPA to further their capabilities around more complex processes that require machine learning.

Why robotics for FoHF administration?

The FoHF industry has historically struggled with the normalisation of unstructured data communicated between investment managers, administrators and investors. An example of this unstructured data is pricing and trade information, which typically comes in the form of a PDF document or an email. These formats are inflexible and have historically required a manual process to extract the most important information. Implementing RPA at key points in the data collection and aggregation process can help to streamline what was once unstructured data into a standardised feed.

Data Collection

A FoHF, as the name implies, is primarily invested in other hedge funds. Those hedge funds aren’t typically listed on a central exchange and do not come with industry-standard identifiers.

Instead of piping in pricing data directly from a third-party source like Bloomberg (in real time), FoHFs receive their pricing via email or by accessing administrator websites. Some of the issues faced when looking at data collection/aggregation for FoHF pricing include:

  • Non-standard data in varying formats (not listed on a central exchange)
  • Multiple delivery methods (email/website feed)
  • Infrequent valuation dates (weekly/monthly/quarterly/annually)
  • Inconsistent delivery times of pricing data (weeks/months after the valuation date)
  • Repetitive processes

To address these challenges, RPA can be leveraged to streamline data collection and provide a round-the-clock solution for moving data between applications. Additionally, this solution ensures completeness, as it is less likely that an available price might be missed. Some RPA solutions that can be used to mitigate the above issues with data collection include:

  • Website scraping – accessing underlying administrator sites and downloading position statements at regular intervals
  • Incoming email processing – using rules to sift and classify emails into various categories for further downstream processing
  • Transfer of data from one system to another – automatically saving attachments and loading them to other systems for processing
  • Encryption removal – removing encryption from PDF documents for text recognition
  • Data Extraction – using predefined rules to extract data from emails/PDF’s

For example, a hedge fund manager may have internal staff mandated with sourcing, loading and extracting position data. For each data point they would:

  • Review their inbox and filter though the various email types to source the required data
  • Save the document (attachment/email) containing the data onto their network
  • Open their investment platform and enter the relevant data points
  • Upload the document to their investment platform from the network
  • Perform a final review of the extracted data to the supporting document

This process gets repeated over and over and is likely limited to the time zone in which the office is located, creating a data bottleneck. With the implementation of some of the above noted RPA strategies, the only responsibility of the staff would be in the final step; reviewing the extracted data. Less time spent on repetitive tasks and more time devoted to review and variance analysis is a much better use of staff resources.

Form Processing

Another key function of administering FoHF’s is providing custody for the positions held. As custodian, fund administrators are required to place trades on behalf of their clients based on their instructions. Unlike buying or selling a listed security on a central exchange through a broker; investing into a hedge fund position requires a significant amount of paperwork. Most hedge funds have their own prescribed templates/forms to subscribe in or redeem out of a position. In this instance RPA can be used to complete the forms automatically, rather than a user completing them manually. This saves time and allows funds to stay focused on their investments.

Form processing can be done by mapping rules within the documents themselves and having RPA access an internal data warehouse to determine how to complete them for each client. This solution moves the industry closer to straight-through processing, saving time (during condensed trading periods) and minimising the risk of trade document completion error.

Conclusion

Integrating RPA into the fund administration process takes the burden of manual, repetitive tasks away from employees and allows them to focus their skillset and efforts on value-add tasks. Reducing the manpower spent collecting and inputting data will drive down operational costs and translate to greater profit margins. Performing a strategic analysis of operational processes and implementing RPA effectively will provide fund administrators with a scalable solution that will generate a positive return on investment.