Technology: innovative solutions required to bridge gaps between traditional and alternative worlds
The convergence of alternative strategies and mutual fund requirements means that innovative technology solutions must be devised that can bridge the gap. Major service providers can use the strengths of their platforms, while others are developing specific applications for the ’40 Act space.
Technology is a key challenge in developing products for the alternative mutual fund space. Most full service administrators utilise core applications from industry-specific and application-specific software vendors, as well as integrating data among specialty systems.
“There are probably only three systems in the entire industry that can support mutual fund transfer agent work,” says U.S. Bancorp’s Kern. “We have developed ancillary peripheral technology and data delivery technology for transfer agent applications, administration, accounting, custody, distribution and other administration functions.”
The data moves between interfaces to meet the daily valuation requirements. This integrated, efficient data transfer eliminates potential errors and minimises operational risks to the investment manager. “We have our own requirements for vendor management, process management, audit, information security and cyber security build into our platform. The funds also have their own integrated processes. Our model fits on top of our clients’ established process,” he says.
The ’40 Act user also might be looking for an easily monitored limit or breach screen that allows them to identify the source of a breach and how to correct it. The best risk management systems allow the ability to stretch the portfolio and create different market scenarios to test which might be out of breach.
By Lance Smith - The market turbulence of the past three years has exposed a number of flaws and limitations in traditional approaches to risk management. In the aftermath of the crisis, investors are increasingly pressuring alternative investment managers to ensure the most advanced and appropriate tools and methodologies are being used to deliver the most robust risk management process possible.
One of the early quants at former Wall Street heavyweight Salomon Brothers, Dr Lance Smith has a rich mathematical background, but believes there is much more to risk management than the mathematical models.