Hedge Funds 1H16 Round-Up: Winners And Losers by Preqin
A Continued Desire For Transparency
by Todd Moyer Executive Vice President, Global Business Development, Confluence
Can you tell us briefly about Confluence?
Confluence was founded in 1991 as a performance reporting application for ’40 Act mutual funds. Since then we have evolved to become a global platform that consolidates and manages data for all types of asset managers, enabling them to meet regulatory and investor demands for increased transparency. Today, eight of the top 10 global asset managers and seven of the top 10 global service providers rely on Confluence to meet these reporting and data management requirements.
We continue to focus and grow our core areas of expertise: performance and analytics reporting, regulatory reporting, expense management and what we call “investor communications”, which is financial reporting, prospectuses, factsheets and a variety of communications and reports that are required at the investor level. To put it simply, we help our clients consolidate their fund data into a single platform, validate its accuracy and then leverage that data for multiple outputs and purposes. Our goal is to improve operational efficiencies and performance for our clients.
Our vision is to be the prominent global leader in data-driven solutions that enable asset managers to meet their regulatory and investor reporting needs using a single platform. A big part of our focus when developing solutions is to ensure that what we are developing will enable clients to remain nimble and proactive in the current market environment.
How have you seen regulation change the hedge fund sector in recent years? How has this increased need for transparency across all types of fund structures changed the way data is managed by fund companies and administrators?
Over the past four years, reporting has gone from very minimal to relatively significant within the alternative fund and hedge fund space. This has been largely driven by regulatory focus on managing systemic risk, and we do not see that trend slowing. Reporting has been the way that hedge fund managers comply with valuations, derivatives and disclosures in addition to handling recent regulatory changes, such as Form PF in North America as well as Annex 4 and AIFMD reporting throughout Europe. Commodity pool managers must also comply with Form CPO-PQR.
Although it has been a very busy last several years in terms of regulation, I think every indication is that there is going to be a continued desire for transparency. And that is really what we are talking about here; whether it is fee transparency or whether it is underlying risk or investment transparency, we feel the global regulators will have a continued desire and effort to focus on that.
Because of these regulatory changes, there has been a fundamental shift since the financial crisis in the way that firms are required to manage data. We are at a tipping point where asset managers’ abilities to effectively manage the volume and the complexity of the data through their current systems have forced the need to evaluate how to better handle that data. We think that the way firms embrace technology to assist in managing their business data will separate the winners and losers.
One of the terms that we are hearing over and over now is “Regulatory Technology” or “RegTech,” which is all about how firms will leverage technology to manage data and meet the challenges that regulatory agencies are putting on them globally. So what we have seen escalating since the financial crisis is the need to embrace RegTech.
Have you seen any changes in the hedge fund sector and investor base?
There has been quite a bit of change in the last several years. Hedge funds are now attracting institutional and retail investors, and investors and regulators are both focused on high levels of efficiency and accuracy – all resulting in heightened data management challenges.
We have also seen a convergence of fund investment strategies. With that convergence, today’s hedge fund managers are increasingly managing “mutual fund-like” products. As a result, retail investors are expecting them to administer their funds with mutual fund-like efficiency, accuracy and reporting frequency.
We have also seen that transparency is a high priority. We believe the firms that embrace transparency – both from the regulatory side of things and also from the investor’s point of view – are going to be the most successful in attracting assets over the long term. Overriding all of this is cost, which has taken on heightened importance as a driving component of investment decisions. We expect to see how asset managers manage cost – as well the overall expense ratio and cost of the investment to the end investor – as critical factors impacting investment decisions moving forward.
How can companies such as Confluence help with the challenges arising as a result of regulatory and other changes to the hedge fund sector in recent years?
Confluence has been in the data management business for over 25 years. We work with some of the largest asset managers throughout the globe. With the rapid changes in terms of regulation, transparency and reporting over recent years, there has been an urgency to react and asset managers have come to us for the solution. Over the past two years we have looked at the way that Confluence leverages technology – the latest and greatest in data management – to enable us to meet this ever-changing need for data management and data re-use. We also have the ability to speed the market to meet the demands we are seeing.
As a result, we recently introduced to the market our Unity NXT™ Regulatory Reporting platform, which was built to provide a complete solution for regulatory data integration, aggregation, reporting and reusability for the asset management industry. With our new regulatory reporting platform, we have built a technology solution to meet new client demands leveraging much of the data that already sits within the Unity® platform – our core platform.
If you look at most regulations, much of the data that asset managers must now report is consistent with the type of data that Confluence has been aggregating and managing for over 25 years. That puts us in a very strong position to help clients meet these new requirements. In many cases, we have already sourced up to 70% of the data needed to meet a specific regulatory reporting obligation for our clients. Another key differentiator for Confluence is that our solution does not require long development cycles. The platform was founded on the idea that regulation is constantly changing, so we have designed it to be easily deployed with the ability to quickly add new functionality. It is also important to note that we did not build this platform off of legacy technology. We are looking at and handling data much differently than we have in the past.
This is something that Confluence has made a significant investment into in order to serve the market needs, and we will continue to drive ahead of the fast pace of regulatory change. So we believe that not only are we in the right position today, but we are confident that we will remain well positioned because our solution was built to help us, and our clients, stay ahead of regulations, which is key.
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