7 Nov 2011
Citi has introduced a new operating model for hedge funds, designed to help managers launch, manage and build successful hedge funds without excessive investment in non-core functions. Citi Prime Finance’s Hedge Fund 3.0 details an outsourcing and partnership framework to help hedge funds achieve greater efficiency across their support functions and infrastructure.
Hedge Fund 3.0 aims to allow fund managers to maintain strict control over a full range of processes with a smaller team and a less cumbersome technology model. Citi developed the Hedge Fund 3.0 concept to reflect how hedge funds had evolved.
In Hedge Fund 1.0, the industry was a niche business, with funds typically relying upon a single prime broker to support trading and reporting. In Hedge Fund 2.0, funds expanded to include more specialised arbitrage, event-driven, macro and credit-related strategies; they also moved beyond one prime broker and developed more in-house capabilities in trade, execution and portfolio management.
The Citi Prime Finance Hedge Fund 3.0 model aims to help fund managers control the ratio of support staff to investment professionals, reduce the cost of the internal employees and remove the need for an extensive infrastructure and IT support function. The model introduces several key service providers such as: business process outsourcing for middle-office, collateral management, cash and treasury, and reference data management functions. As well as, specialist HR and benefits brokers, off-premise IT services and knowledge process outsourcing.
“The Hedge Fund 3.0 concept reflects the emergence of specialty providers who focus on the hedge fund industry, enabling fund managers to concentrate on key aspects of investment management while reducing their base of fixed costs,” said Alan Pace, head of Prime Finance in the Americas at Citi. “These experts have a keen understanding of the complexities of hedge fund management and can lift the burden of building and maintaining the infrastructure needed to handle complex trading strategies, as well as extensive regulatory and reporting demands.”
Hedge Fund 3.0 aims to allow fund managers to maintain strict control over a full range of processes with a smaller team and a less cumbersome technology model. Citi developed the Hedge Fund 3.0 concept to reflect how hedge funds had evolved.
In Hedge Fund 1.0, the industry was a niche business, with funds typically relying upon a single prime broker to support trading and reporting. In Hedge Fund 2.0, funds expanded to include more specialised arbitrage, event-driven, macro and credit-related strategies; they also moved beyond one prime broker and developed more in-house capabilities in trade, execution and portfolio management.
“As funds handled more functions internally, they needed broader expertise and more day-to-day management of resources,” said Sandy Kaul, US Head of Business Advisory at Citi. “Organisations grew rapidly, the ratio of support functions to investment functions increased and more infrastructure and IT support was required to achieve the desired depth of controls. This led to a high fixed cost base and created problems in the wake of the global financial crisis of 2008.”
The Citi Prime Finance Hedge Fund 3.0 model aims to help fund managers control the ratio of support staff to investment professionals, reduce the cost of the internal employees and remove the need for an extensive infrastructure and IT support function. The model introduces several key service providers such as: business process outsourcing for middle-office, collateral management, cash and treasury, and reference data management functions. As well as, specialist HR and benefits brokers, off-premise IT services and knowledge process outsourcing.
