Seismic change in hedge fund outsourcing predicted

The current challenge for hedge fund managers is to demonstrate comprehensive operational control in the face of redemptions, cost pressure and lower fees, reported the paper. It forecasts outsourcing as the best viable solution.

The paper defines a turn-key hosting provider as a combined solution of software, hosting services and support. It envisages turn-key hosting to be the wave of the future for fund managers, fund administrators and prime brokers.

According to the paper there is no need for fund managers or service providers to incur the costs of building complex infrastructure, when lower cost and more comprehensive outsourcing solutions are available in the marketplace.

"Comprehensive hosted solutions and specialised service providers will be the driver of a trend in which fund managers shift away from building technology and staffing infrastructure and move aggressively to outsourcing solutions in the areas of IT, software, and operational support," commented Paladyne CEO Sameer Shalaby.

As the outsourcing trend gains momentum in 2009, the paper foresees an increasingly important role of fund administrators.

Fund administrators will be required to expand their services to include client-facing technology, intra-day reporting and middle-office services in order to stay competitive, according to the paper. Fund administrators may begin to team with turn-key hosting providers to offer clients a shared platform combining technology and middle-office services.

This technology and services offering will result in considerable productivity gains, improved client retention, and increased revenue for the administrators, concluded the paper.

"The primary beneficiary of this new outsourced operating model is the investor, who is assured of greater transparency through better reporting and tighter oversight based on the integral relationship between the operations of the funds and their service providers," said Shalaby.

Paladyne Systems is a solutions provider for the hedge fund industry. It develops and distributes technology and managed hosting services designed to streamline hedge fund operations and provide business efficiency and cost savings.

* Outsourcing Trends in the Hedge Fund Industry.