AdventConnect: Monte Carlo

Highlights from Advent’s EMEA Conference

Originally published in the June 2012 issue

Advent recently held its annual client conference for Europe, the Middle East and Africa in Monte Carlo, and had a dedicated stream of sessions for alternative managers. It was a very successful event, with exciting news on the direction the company is taking, industry trends and regulation, and networking sessions. Here are some of the main highlights from the conference.

Advent’s Suite for AI Managers
Advent has recognized the need for a single hosting environment for portfolio management, fund accounting and/or NAV shadowing, and for a system to manage cost controls within the firm as well as margin and financing. We are also conscious of the increased cost of IT to institutions when combined with regulatory changes: firms have to do more and more, costs are ever higher and the market changes faster and faster. Advent is helping firms meet these challenges by offering them the possibility of using our solutions in the cloud, making them more cost efficient, but also easier to use with new user interfaces, new workflows, a single sign-on and a single search capability across all platforms from trades to documents to margin requirements. Firms and users can each build their own workflows to give each user a unique experience, with all the information they need in one single place, collaborative utilities and links to the entire hedge fund ecosystem including fund administrators, prime brokers and CCPs.

We held a fund administrator workshop to garner feedback from fund administrator users of Advent solutions and to ensure we are focusing our development efforts on the areas of priority. Participants discussed reporting, collaborative workflows, and the development of social media workstreams on topics such as regulation, master/feeder structures, migration and product analysis.

The report building workshop presented new capabilities which will allow firms to build even the most complex reports directly within Geneva. Clients were particularly excited with reports on joint statements and those showing positions and transactions side-by-side.

At another workshop we presented the latest release of the expense fee manager module, which includes new accrual day counts, increased calculation basis and further automation of the expense accrual process, allowing hedge fund users to better understand their costs and liquidity.

Managing your margin & financing in a multi-counterparty age
Operational challenges for a hedge fund COO today include managing multiple counterparties and their increasingly complex margin and financing terms. At the same time, squeezed resources mean hedge funds are trying to minimize collateral deposits. Investor and regulatory demands are also tougher than ever, and hedge funds must be able to respond to these.In this context, not managing margin and financing relationships and terms can mean missed trading opportunities, risks of exceeding lock up agreements, unidentified stock loan rate increases, which hedge funds can no longer accept.

Followed a demonstration of how, with Advent Syncova, hedge funds can:

• Improve the management of counterparties and reduce the risk of overcharging, increase transparency on complex margin and financing terms, and optimize asset placement;
• Reduce debit and financing costs by predicting and minimizing collateral requirements and finding better borrow rates;
• Gain visibility on the true cost of capital by being able to attribute total costs of capital back to an individual trader, desk, or strategy.

Regulatory update
New regulation discussed in this session covered tax capture requirements (FATCA, cost-basis reporting…), compliance and risk through retail regulation (UCITS, MiFID II, RDR), reporting for non-retail investors (AIFMD, Dodd-Frank), and centralised clearing required by Dodd-Frank in the US and EMIR in the EU.
All of these new regulations mean that firms need both fund and investor-level detail, which in turn requires document management and tracking capabilities to meet increased investor reporting, data, and accounting requirements, as well as enhanced expertise. Advent has therefore included enhancements like the integration of investor detail to its fund accounting solution and document management, streamlined investor documentation for KIID reports, and exposure reporting for AIFMD.

Changes in Centralised Clearing and Collateral Management
Centralised clearing will enable the industry to mitigate counterparty risk, by removing exposure to individual brokers and because the Central Counterparty (CCP) will guarantee every transaction. It will also bring about improvements in pricing and transparency, and reduce the amount of documentation needed. However, it will also have a wide impact on collateral management, with higher requirements expected, due to a stricter set of initial margin calculations set by the Clearing Houses and a more limited access to the benefits of cross netting. Restrictions will apply to acceptable collateral types through each CCP’s eligibility criteria and limits, thus impacting collateral liquidity. Some possible solutions to this are to enter into asset transformation swaps, single currency funding agreements, or pre-paying services.Centralised clearing might also give rise to intra-day margin calls, to which hedge funds could respond by signing up to a single margin call service or to an auto-sweeping service with their Futures Commission Merchant. In this context, the Advent Syncova platform offers support for both bilateral and centrally cleared models, with the flexibility to adapt to future changes and broker specific adjustments. Its CCP margin methodology replication makes it adjustable for any multipliers and FCM spread, and gives managers the option to run ‘What If’ scenarios to help identify which CCP to clear through. The platform also reflects the different Clearing Houses’ collateral haircut schedules, to help identify the acceptable assets to use as collateral. Finally, Advent Syncova offers support for the monitoring and allocation of all the new fee structures associated with centralised clearing.

Distributing Data and Real-Time Access
In EMEA hedge funds focus on portfolio management and rely ontheir fund administrator to calculate the NAV, which becomes complex to reconcile when there is a discrepancy. Moreover, there has been a growing demand for externally delivered services due to rising costs of regulation, CCP…, etc. In response to this Advent has been working on tools that will enable fund administrators to move to a T+0 model, and to give their hedge fund clients the information they need, in the format they want, from a P&L view but in a way that ties back to the underlying data.In the hedge fund space, Advent has developed its application footprint to the middle and front office and offers a rules-based workflow with trade capture that can be applied at investment, structure and investor detail level to give business outputs on positions, exposure, P&L, GL, performance, NAV…, in a format that can be easily customized to fit the needs of each function.

Leverage modelling across the enterprise
This session gave an overview of Tamale’s extremely powerful search toolset, which enables managers to classify their investments according to whichever schema they are using and to filter in many possible ways. Analysts can search for documents, comments, notes…, etc. by whichever criteria they prefer, which is a huge benefit over shared drives, in which for example folders cannot be rearranged by submitter if they have been created by industry. Moreover, managers can find documents in a sub-second, which includes a search within the attachments on emails.

Tamale can also add a “frontsheet” to analysts’ excel spreadsheets, which will capture the information required by management in the same way for all analysts. All that analysts have to do is take a snapshot of this frontsheet and load it to Tamale, and without any of them having to change the way they work, management gets a unified view of all the different analyses across the company.