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The onward march of STP


Over the past year, PFPC International has experienced further expansion of its hedge fund administration business in Europe, in terms of growth in assets and employee numbers, and has expanded its

Over the past year, PFPC International has experienced further expansion of its hedge fund administration business in Europe, in terms of growth in assets and employee numbers, and has expanded its facilities in Ireland to accommodate the continuing growth in the alternative investment area. Toward the end of 2006 PFPC established a third operation in Navan exclusively dedicate to hedge fund accounting, in addition to the existing facilities in Dublin and Wexford, and by the end of this year the total workforce is likely to be approaching 700 people.

In response to market demand, the organisation is continuing to focus on middleoffice services, a key differentiator between PFPC and some of the other players in the market, and gearing up to meet the challenge of pricing illiquid OTC securities, an increasingly common feature of the industry as the volume of derivatives traded continues to grow. There is also convergence between the traditional fund industry and alternatives, with the introduction of 130/30 products and other derivatives-based strategies that can now be accommodated within a Ucits III retail product. This expansion is taking place against a backdrop of increasing regulation and demands for greater transparency from the investor community. PFPC has invested extensively to ensure that its reporting is market-leading in terms of transparency and availability via web reporting and other channels.

This trend means that PFPC is increasingly providing daily profit and loss reporting with respect to all security positions, ensuring that the manager’s records are fully aligned with those of the funds and that any disparities are picked up on a daily basis instead of having a month’s lag before a full review of the fund’s records. This requires dedicated resources on the part of the administrator to ensure that all that daily reporting is produced within the timelines required. Investors increasingly require weekly estimates to help them monitor any intramonth movements in addition to the official month-end NAV figures.

Technology is critical to establish greater efficiency and avoid the need to increase staff in line with growing volumes of business. PFPC’s ideal model, which it seeks to replicate across all security types – although some are easier to accommodate than others – is a full straight-through processing environment from the front-office system through to the accounting net asset value production.

A manager outsourcing to a full service offering including middle office functions will key in trades in real time to a system provided by PFPC that acts as the manager’s portfolio records. The middle office picks up that trade, which is matched with the broker and routed electronically to the prime broker or custodian. At various stages throughout trades are downloaded from the front office platform into PFPC’s accounting system, again fully automated, and the final check is an automatic reconciliation between the accounting records and those of the prime broker.

For long/short equity strategies and with contracts for difference, most of this is fully STP, although certain security types and accounting entries still need to be input manually, normally involving collateral movements and some derivative types that don’t lend themselves to full STP. However, STP rates have increased to a very significant level, so that although PFPC has taken on a substantial number of additional funds, it has not needed to increase staffing to the same degree. The past year has seen a major step forward in efficiency through enhanced technology, offering not only cost benefits but crucially reducing the possibility of error. 

Mark Mannion is managing director of PFPC International

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