Hedge Fund - Risk & Portfolio Management

Challenge

The global long-short hedge fund, with positions in multiple asset classes in various currencies, needed to replace its in-house legacy risk and portfolio management system that was built over many years by integrating multiple systems when needed.

The Chief Operating Officer (COO) wanted to build a more planned and structured centralized risk and portfolio management system that could generate over 25 nightly reports, including CFTC required Form-PF, Form CPO-PQR reports, as well as OPERA reports, as soon after market close as possible.

Technical requirements included support for multiple asset classes, equities, derivatives, multiple currencies, and commodities. The solution also needed to be highly efficient, cost-effective, and most importantly, scalable over time as the requirements evolved based on new developments to the Wall Street Reform and Consumer Protection Act.


Solution

During the discovery and project planning phase, the HBM team, with extensive knowledge and experience in the investment management industry, reverse engineered the current legacy system in order to design the architecture of the new integrated enterprise risk and portfolio management solution.

The team started small by building a proof of concept to port over non-critical risk and portfolio management functions to the new system first It then focused on the more important functions later. This highly-customized risk solution had support for custom functions like Variance-Covariance value-at-risk calculations with over 99% confidence level, in-house stress test scenarios, and models.


Result

The new system met the client’s goals, as described in the Challenge above. HBM’s extensive knowledge and experience in the hedge fund industry allowed for a reverse engineer of the legacy system in a short period of time. Prior understanding of financial risk reporting and portfolio management models allowed the team to start small, and perform rigorous testing and validation of the new reports against independently built Excel spreadsheets, as well as current reports being used in production.

Major Benefits

Timely & Accurate Reporting

The automated solution produces reports that are more predictable and reliable. The daily reports and older archives now become available through a centralized dashboard to management without having to manually search for them or ask the operations team when needed.

Exceptional Return on Investment

According to the Chief Operating Officer, the man hours saved by automation allowed at least two full-time roles to be dedicated to other functions within the company. This resulted in annual savings of over $150,000 - $175,000. This amounts to over $1.5 million in savings over a ten-year period.

Highly Efficient Workload Management

According to the COO, the biggest advantage of this new solution is that it allowed them to better utilize their small team, thereby getting more work done, while keeping the team small. The middle and back office operations team no longer needs to gather data manually from various sources, and then reconcile the data after generating the reports.