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The automatic revolution is upon us


Two key visible and ongoing trends in the servicing and administration of funds is the convergence of traditional and alternative investment managers on each other’s space, and the need for increas

Two key visible and ongoing trends in the servicing and administration of funds is the convergence of traditional and alternative investment managers on each other’s space, and the need for increased automation and processing.

One result of the convergence is the bridging of the gap that was earlier quite evident across the fund spectrum. From the traditional manager’s point of view, we are seeing many investing into alternative products, using shorting techniques and systematic derivatives. From the hedge funds perspective, we are seeing the need from clients for more frequent dealing and reporting, taking on some of the characteristics of traditional funds.

For a service provider, to keep up with clients’ requirements and respond to these ongoing trends, there is a need for increased automation in order to provide information and pricing in a daily rather than a weekly or monthly environment.

Trade input, valuation and reconciliation needs to be optimised into a time zone that works to the service providers’ advantage in order to meet clients’ needs. We are already seeing the direction in which the industry is moving in order to create capacity and scalability. This demands technology and investment in state of the art systems and robust infrastructure, centralising systems and procedures to enable round-the-clock processing.

For single manager funds the triangular reconciliation process between the administrator’s systems, populated by manager trade instructions and independently valued, and prime brokers’ records must become a straight through process. Currently administrators automate this process on a client-by-client or prime broker-by-prime broker basis. Although this provides an automated solution with client tailoring capabilities, in order to determine required capacity and scalability, a standard industry-wide messaging system providing straight through processing similar to the traditional fund administration business is required. The first step in achieving this is for the industry to establish standard unique identifiers (security masters) for all investment instruments.

One current initiative to address the challenge of a largely paper-based fund of hedge funds (FoHF) system is collaboration between service providers in various hedge fund jurisdictions who are working towards an automated solution for FoHFs using the SWIFT messaging system. Once in place the SWIFT initiative will allow the straight through processing of fund of fund trading from investment manager to custodian to transfer agent. The SWIFT messaging platform will also facilitate a more automated approach to pricing, valuation and settlement of fund of fund trades.

Within the funds world, processes and trade information need to be transferred automatically with flexible and timely solutions being the order of the day. At UBS, we are working towards a completely automated future.

Putting it simply, automation reduces hours, helps provide accurate and timely information and increases scalability. In fact it is necessary to sustain business growth in the future. Generally, we follow a continuous circle of automation. New challenges tend to be manual but then they become automated. Fund automation is on the advance. To remain competitive, the fund industry must embrace it and strive for the scalability, capacity, risk reduction and cost-saving benefits derived from automation.

Don McClean Head of Fund Services, Ireland UBS Global Asset Management

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