How can technology help hedge funds get compliant and stay ahead?

How can technology help hedge funds get compliant and stay ahead?

Fibre Optics (Credit: Neil Winton)

Ahead of GAIM 2016, co-located in Amsterdam this year with GAIM Ops Amsterdam, we spoke to Jérôme de Lavenère Lussan of Laven Partners about how hedge funds are achieving compliance but also gaining comparative advantage from investing in technology. Follow all the action from Amsterdam here, and on the hashtag #GAIM.

How would you characterize current attitudes to technology among hedge funds?

Little is available, but there is a keen interest. This is visible in reporting technology, which is more common. It’s less visible in using compliance monitoring software, where the offering is limited but reactions are always positive for anything that improves quality and cuts time and cost.

Some very large hedge funds don’t mind the current model of spending a lot on internal teams or external consultants but this will be superseded as the technology improves.

Do you believe that it’s always worth getting ahead of the market with compliance?

Yes. It has always helped pass operational due diligence, it avoids embarrassing questions from investors, it accelerates inflows. It has never harmed anyone to be ahead as compliance developments always catch up with you. It is like a constant mini-tsunami. It’s best to stay ahead.

Do you believe managers are getting value-for-money on operations and compliance solutions from service providers today?

No, but nor are they challenging the current model which is a classic pay-per-hour service or pay-per-AUM. What would bring value are fixed-price solutions. Those can be aided by software but a software that is only providing a component: for example, reporting or document hosting is not a complete software solution and still requires a lot to be done by and at the will of the compliance team. What would bring real value is fully-compliant software designed to match the law. That is a complete software solution that slots into a workflow and reduces costs and time consumption. Today for many small managers, compliance costs are about £12,000 a year with little added value. The same binary support of reviews or regulatory updates can be done much more effectively with software.

What’s a good approach to technology investment for smaller managers?

Look for new products that from day one keep you compliant without paying outside consultants. Keep your internal staff numbers limited but well equipped with software.

What do firms need to do organisationally to make the most out of new technology?

First, they need to identify technology solutions. That needs a bit of digging. They need some staff that are comfortable with cloud computing and who therefore know how to manage risks such as business continuity or cybersecurity threats. Then they need time to train on software and make sure the software are updated with new regulations. They need to ensure software offers flexibility to adapt to the manager, who will all have some customisation needs.

What’s the best thing managers can do to prepare themselves for MiFID II at this stage?

Wait. It is not happening for a while – January 2018. Compliance software will catch up. There are two sides to the technology that will be needed – one transaction reporting and one due diligence and client assessment monitoring. Software providers are already providing some solutions and as more guidance becomes available for Mifid 2, the software will get better in time for the application of the directive.

Jerome de Lavenere Lussan
Jerome is the founder and CEO of Laven Partners. His background includes acting as a COO of a hedge fund and as a financial lawyer at Jones Day. Jerome has a broad degree of expertise in the alternative fund and fund management industry and is an advisor to many international financial services firms specialising in operations and regulatory matters. He is a member of the Law Society of England and Wales and of the CFA Society of the UK.

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