A new study by Greenwich Associates in partnership with Omgeo (available here) provides some helpful data on the evolution of hedge funds' operations in the post Lehman, multi prime environment. The paper makes a number of points, confirming firstly the expected trend for hedge funds to be more focused on counterparty risk (reflected by the need to add more prime brokers and counterparties, albeit with the impact of a greater operational burden). The paper also provides some useful statistics on investor preferences, noting that significantly increased investor sensitivity to operational quality is pushing managers to make changes:
"Clearly, it’s a new world for hedge funds, one which requires more than just a novel trading strategy and a desktop terminal. To attract institutional and high net worth assets, hedge funds need to show that they are as trustworthy as the biggest firms and have all of the same operational infrastructure in place. Failure to do so will leave them out in the cold"
Ever the contrarian, one quote did stand out to us, however. Greenwich / Omgeo comment that "more than 60% of the hedge funds say that they gather and manage data on trades and positions internally, and more than two thirds manage collateral internally." Now, this is a study of some 52, "leading" managers...exactly what are the 40% who apparently do not "gather and manage data on trades and positions internally" doing?
Hedge Fund Operational Due Diligence
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