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Turning Data into Information for Multi-Manager Hedge Fund Platforms
As multi-manager hedge funds grow, they are looking to advanced data solutions for better operating leverage, seeking experienced partners with customizable tools and client-centric services to gain competitive edge in their pursuit of alpha.
Head of Relationship Management at Northern Trust Hedge Fund Services
Multi-manager hedge funds have ridden a wave of outperformance in recent years, driven by the agility of allocating capital across investment strategies combined with portfolio construction and risk management expertise. Industry statistics show no signs of this trend stopping, either: within the past five years, these firms averaged returns of 8.3%, outperforming the wider industry's 5.5%, according to Reuter’s1. This is despite the typically higher cost of these platforms, which investors have been willing to accept due to their ability to outperform their rival funds.
As a result, multi-manager hedge funds have grown significantly in the past five years, as the multi-strategy space has seen assets grow from $530 billion in 2018 to $669.94 billion as of June 2023, according to data from Nasdaq eVestment2. As the demand for multi-manager funds continues, these firms are increasingly seeking data solutions and resilient operational platforms that can streamline processes and contribute to alpha generation front to back. Most importantly, they are looking for data customization and flexibility that is delivered within user-friendly architecture, as well as cutting edge analytics that can provide them with actionable insights.
Implementing and upgrading technology solutions today can be an expensive endeavor. Firms looking to scale for the future with the most advanced technology are identifying where it makes sense to move to a variable cost model, outsourcing and co-sourcing with a strategic provider which can help them achieve scale and resiliency in times of market stress. When choosing a provider, a flexible, intuitive platform is crucial to help support executing business strategies and generating alpha. Equally as important is a partner with a commitment to the industry, experience in the unique needs of multi-manager, multi-strategy platforms, and a client-focused service model that can help funds stay competitive in the battle for alpha.
Multi-manager firms must be able to leverage accurate data and reporting to support their portfolio managers’ investment strategies – but no two strategies will be the same. Managers trading similar assets classes may need very different views of risk, exposure and portfolio construction to implement and express their trade ideas effectively.
Platforms need to know that their trades, cash and collateral movements are processed accurately, and that middle office and operations are run in a controlled and resilient manner. In addition, with the convergence of public and private investments, a platform that can support a wide breadth of asset classes seamlessly in a single data source should be expected. Access to data, exceptions and workflow signals in real or near-real time will allow today’s multi-manager hedge funds to make faster, more informed decisions.
While timely data and the ability to customize it are vital for managers, what really moves the needle is the ability to turn this data into actionable insights. For example, the ability to track exposure to interest rates and market volatility along with credit and counterparty risk can help multi-manager firms manage capital and risk more efficiently across strategies and understand their risk-based performance attribution. A sophisticated data solution that offers monitoring and portfolio analytics tools is crucial to managing risk and making investment decisions.
While cutting-edge software helps multi-manager firms to fine tune their data management, meaningful support goes beyond the software. Sophisticated hedge funds can benefit from a provider that offers the service and industry expertise to back up the technology and is committed to making the necessary investments in technology innovation. Unlocking the true potential of a top-notch data platform requires coupling it with proven expertise in working with similar hedge funds and experience that can help identify and refine data needs.
There is no one-size-fits-all data management strategy for asset managers, and this is especially true for multi-manager hedge funds. Multi-manager funds are increasingly looking to their administrators to provide sophisticated data solutions that can help them create operating leverage. Finding an experienced partner that provides flexible and customizable data tools, coupled with a client-focused service model, is paramount as it may provide the competitive edge needed in the battle for alpha.
Northern Trust Hedge Fund Services (NTHFS) specializes in providing integrated middle and back-office administration to alternative fund managers and institutional investors with complex portfolios. Northern Trust continues to heavily invest in the Omnium platform to build out its capabilities to address future industry needs, working side by side with our clients to further enhance the user experience, maximize transparency and drive Operational Alpha. As of June 30, 2023, NTHFS has approximately 130 clients on the Omnium Platform and over $540 billion in AUA. To learn more visit www.northerntrust.com/hfs.
1 Multi-manager hedge funds offer big returns but at high cost | Reuters | February 8, 2023
2 FundFire - Citadel, Millennium Lead Surge in Multi-Strat Hedge Fund Assets | August 2, 2023
Head of Relationship Management at Northern Trust Hedge Fund Services
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