Are you the hedge fund manager or investment firm’s owner who is managing and controlling all the middle and back-office operations? Then you may have a serious problem managing all the work and a large team. You can thereby choose to outsource your middle and back-office operations, which is a trend nowadays.
Doing all the work by yourself can significantly impact your fund’s performance and your client’s fund’s management. In this article, you will learn how outsourcing hedge fund back office and middle office operations can benefit you and what the trends in outsourcing are.
What are Hedge Fund Middle and Back Office Operations?
The hedge funds of all sizes are divided into three departments based on the work they handle: front office, middle office, and back office. The front office work is related to directly managing the investment and trading it. Accounting-related operations are handled by the middle office. The back-office operations are the backbone of the hedge fund firm and support the trading and accounting work along with pricing, settlements, and other related work.
The middle office employee’s job is to ensure that all deals are accurately recorded and booked. For this work, they are involved in completing the legal requirements, agreements’ completion, tracking the deal and putting the internal and external compliance in place. The list of operations associated with the middle office are:
Trade Routing and Processing
Trade Matching and Settlement
Over the counter (OTC) processing
Investment accounting
Real-time performance reporting and processing of data
Pricing and valuation
Accurate inputs and data provided by the front office
International transparency to counterparties
Investment risk reporting
Back-office operations are related to settlements, clearance, record maintenance, accounting, HR, IT, etc. The list of activities that a back office does:
Custody
Investor Servicing
Investment Compliance
Portfolio and fund accounting
Fund administration
Back-office operations require committed people who have the know-how to oversee a trade after it has been done. Small hedge funds have the option of hiring the midsize hedge fund administration services , which will take on all responsibility for resolving trading concerns if they are unable to perform this role owing to technological or budgetary constraints or economies of scale. A minimal team from the hedge fund should be communicating with the administrative office to coordinate trade-related concerns
Why choose hedge fund outsourcing services?
The back office and middle office operations functions are plagued by numerous conceptual and fundamental problems. The fundamental reason for this is that managers and traders do not appreciate the importance of a holistic strategy for effective back and middle office operations.
Companies and institutions spend millions of dollars ensuring that trades are trades, transactions are recorded correctly, there is smooth cash flow movement and accounts are monitored accurately and efficiently in a continuous manner.
According to the survey, hedge fund back office outsourcing and hedge fund middle office services are very prominent across all hedge fund sizes in different services. The fund houses handling AUM of more than $1 billion generally outsource fund administration, tax and accounting and HR work to third parties.
Most outsourced services taken by the firms having an AUM of more than $1 billion.
Apart from these big fund houses, small and mid-sized organisations occasionally struggle with a lack of time, money and talent to expand their fundamental advantages. Large sums of money have been allocated to operations, yet the issues still exist, necessitating the active search for alternatives and more extreme solutions. Tax and accounting services, fund administration services and legal and compliance services are the top three services for fund houses with less than $1 billion in AUM.
Most outsourced services by the firms having an AUM of less than $1 billion.
The five salient benefits of choosing the hedge fund outsourcing services are:
1)Risk Reduction
Risk reduction is the most important reason why people choose to outsource the work, thereby helping them put processes or regular compliance in place.
2)Automated Software’s
Using Excel or spreadsheets for accounting and administrative work is outdated now but choosing hedge fund accounting services from your outsourced provider can provide access to cloud and AI-based software that not only helps with the documentation and accounting but also improves the data tracking and transparency for the investors.
3)Time Saving
Time is crucial for a fund manager to compete and track the fund’s performance on time, thereby focusing on increasing profits. With the help of an outsourced firm, they can delegate the repetitive work to them, thereby focusing more on clients and investors.
4)Cost Efficient
How can you forget about the cost and affordability that come with an outsourced service provider? They offer a variety of services such as data management services, fund administration services, data tracking, HR and IT services, tax regulations and compliance and so on, with customised offers that you can add or subtract based on your budget at any time.
5)Advisory and Consulting
Hedge fund middle office services do not work as a stand-alone entity but also provide advisory and consulting services to the fund managers that help them meet their objectives. They can help you with planning with strategic competency, adaptation to current market trends and further market expansion.
Conclusion
The size of the fund does not matter when choosing hedge fund back-office services or middle office outsourcing. A hedge fund manager or owner who is lacking human capital, budget and technology and wants to scale the business with efficiency and transparency can hire an outsourced firm like IBN Tech , which has great experience and can become your trusted business advisor.
