Fund Services - Key Operation Risk Area
Institutional investors are increasingly demanding more transparency around the controls and procedures of hedge funds, funds of funds, private equity funds and managed account managers.
One key operational risk areas that fund managers should focus on is:
Experience of Operational Personnel
Investing in bank debt requires numerous dedicated personnel properly trained on the nuances of servicing the loans and supporting the ongoing maintenance and the processes around bank debt settlements. Based on terms and conditions most loans are typically at the top of the capital structure of a legal entity. They share senior secured claim against the assets of the borrower and are protected by covenants that are spelled out in a credit agreement. As such, any returns derive mainly from the receipt of interest payments rather than capital appreciation.
At the other end of the spectrum are equity investments, where capital appreciation is the basis of the majority of returns. Because the return profile of bank debt investing is focused on interest income, the realization of anticipated returns is heavily reliant on operations to properly and promptly settle trades under the agreed upon terms. Given the volume and frequency of data flows, having proper and experienced personnel equipped with capable technology is critical to successful investing.
Problems that may occur during the accounting and settlement cycle include missing paydowns, interest resets, credit events and settlements. These will trigger accounting errors, economic losses and, ultimately, the incorrect reporting of profit and loss. Incorrect computation of investment P/L can cause internal (management) and external (client) reporting problems that will directly affect the ability of an investment manager to manage the grown of his/her business.
The third party fund administrator should be an established provider with a demonstrated expertise in these instrument types. Too often, administrators will claim to handle everything to get the business. Verification of capability should include system demonstrations with pertinent data, reports, interviews with key staff and references. Whether you are a hedge fund, private equity fund, fund of funds or a managed account, SS&C Fund Services can tailor a solution to meet your needs. We provide independent market valuations for all asset types, improved operational efficiency, compliance with regulatory requirements, cost reduction, and better investor services using our state-of-the art applications. We are one of the largest fund administrators in the industry, yet we provide a boutique level of service to our clients, large and small alike.
One key operational risk areas that fund managers should focus on is:
Experience of Operational Personnel
Investing in bank debt requires numerous dedicated personnel properly trained on the nuances of servicing the loans and supporting the ongoing maintenance and the processes around bank debt settlements. Based on terms and conditions most loans are typically at the top of the capital structure of a legal entity. They share senior secured claim against the assets of the borrower and are protected by covenants that are spelled out in a credit agreement. As such, any returns derive mainly from the receipt of interest payments rather than capital appreciation.
At the other end of the spectrum are equity investments, where capital appreciation is the basis of the majority of returns. Because the return profile of bank debt investing is focused on interest income, the realization of anticipated returns is heavily reliant on operations to properly and promptly settle trades under the agreed upon terms. Given the volume and frequency of data flows, having proper and experienced personnel equipped with capable technology is critical to successful investing.
Problems that may occur during the accounting and settlement cycle include missing paydowns, interest resets, credit events and settlements. These will trigger accounting errors, economic losses and, ultimately, the incorrect reporting of profit and loss. Incorrect computation of investment P/L can cause internal (management) and external (client) reporting problems that will directly affect the ability of an investment manager to manage the grown of his/her business.
The third party fund administrator should be an established provider with a demonstrated expertise in these instrument types. Too often, administrators will claim to handle everything to get the business. Verification of capability should include system demonstrations with pertinent data, reports, interviews with key staff and references. Whether you are a hedge fund, private equity fund, fund of funds or a managed account, SS&C Fund Services can tailor a solution to meet your needs. We provide independent market valuations for all asset types, improved operational efficiency, compliance with regulatory requirements, cost reduction, and better investor services using our state-of-the art applications. We are one of the largest fund administrators in the industry, yet we provide a boutique level of service to our clients, large and small alike.
