youDevise expects the HIP's new Straight Through Processing (STP) interfaces will accelerate the movement away from inefficient manual processes in a segment of the financial services industry that has lagged in electronic processing. Launched in May 2006, the HIP is the first portfolio management system for solving critical fund of hedge fund (FoHF) management, risk, compliance and cost issues.
FoHFs regularly need to receive market data and exchange information with hedge funds, administrators (who serve both hedge funds and FoHFs), banks (who serve FoHFs), and investors. Throughout the industry, however, the exchange of information between FoHFs and their counterparties is haphazard, based on a combination of fax, telephone, email, snail mail and manual key-entry.
"These inefficient, relatively primitive means of communication do a disservice to what is otherwise a very cutting-edge industry," said Richard Koppel, Managing Director of youDevise. "They drive up costs, hurt the timeliness and accuracy of information available to funds of hedge funds for decision-making, and impair the quality of information available to investors." Prior to youDevise, Mr. Koppel consulted for global financial service companies on IT and related issues for firms such as McKinsey & Company and Coopers & Lybrand.
To solve this problem, youDevise has incorporated standard STP interfaces into the HIP for receiving market data; for communicating interactively with hedge funds, administrators, and banks; and for enabling FoHFs to offer their own investors online access. "These STP feeds keep fund of hedge fund managers and investors as up to date as possible on their trade confirmations, cash reconciliations, and intra- and end-of-month positions," said Owain McNeill, Business Manager of Alternative Investments at youDevise. "Similar to the use of STP in other parts of the financial services industry, overall benefits include reduced manual and duplicate data entry, errors and settlement cycles; increased transparency, audit-ability and access to up to date information; faster query resolution; and improved customer service."
youDevise is currently working with its HIP clients to introduce the industry's first true STP linkages between them and their counterparties. For Key Asset Management of London, youDevise is arranging for their administrators and banks to electronically communicate trade status and cash reconciliations. For a new FoHF client, youDevise is setting up online account access for institutional investors. For other FoHF clients, youDevise is arranging for them to receive market data electronically
"The cost of creating and installing these connections is relatively small and not very complicated," said Mr. Koppel. "Hedge funds now manage about $2.4 trillion, with nearly 40% of that coming through funds of hedge funds. The time has come for the FoHF industry to organize and establish standards for STP connections. Such standards have led to the proliferation of STP in equity trading, which, in part, helped to create the hedge fund industry as we know it today. Survey after survey has shown that STP reduces processing costs, as well as regulatory and operational risk, and it increases productivity and the speed and simplicity of getting things done."