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EisnerAmper Q&A with Jeremy Siegel, CEO, Portfolio BI

Aug 27, 2020

Portfolio BI is a New York-based provider of front-to-back-office solutions for order management, portfolio management, enterprise data management, and reporting for the buy-side. EisnerAmper sat down with Jeremy Siegel, the company’s CEO, who discussed the importance of hedge funds embracing automation, having robust technology and adopting best practices in the areas of operational resilience and business continuity planning (BCP). As a prime brokerage veteran, he also addressed how prime brokers are launching their own electronic platforms to digitize capital raising. Ultimately, managers who fail to automate their business operations can risk losing an investor allocation.


It is no secret that some alternative investment managers have embraced automation to give both regulators and allocators one central place to see their data. With COVID-19 prompting the industry to work remotely, this has never been more urgent. Can you discuss why more funds should embrace automation in this new environment?


Today, many firms manage multiple funds and trade multiple asset classes. In addition, funds employ various structures including separately managed accounts (SMAs), funds of one, and more. They also have multiple prime brokers. With increased regulation such as the EU MiFID II and the Alternative Investment Fund Managers Directive (AIFMD) requiring managers to update their trades real-time, it is more efficient to automate this process to give regulators and investors one data set that can be analyzed multiple ways.

Even before the COVID-19 pandemic, at the beginning of the year, the SEC and U.K. Financial Conduct Authority (FCA) issued statements urging investment firms to focus on their operational resiliency. The FCA said operational resiliency, namely the ability to adequately manage technology, was one of its main priorities. Consequentially, regulators will almost certainly examine how the technology and operational processes at asset managers performed during the peak of the COVID-19 crisis.

Surprisingly, a large proportion of the industry still relies on legacy technology and manual processing. This ongoing dependency on antiquated systems exposes fund managers to potential risks and creates added costs. In many instances, fund managers continue to perform operational activities — such as investor reporting, risk management and compliance — using Excel spreadsheets, often stored in an unstructured format across multiple workstreams. Not only does this increase operational risk and duplication, as the likelihood of making a mistake or miscalculation is high, but it eats into margins because the costs of running legacy technology can be quite sizeable, owing to the increased reliance on human intermediation in the workflow process.

When data is automated, it can be analyzed on a multi-lateral basis to figure out how alpha was generated.


The concept of business continuity planning (BCP) really became a point of focus after the September 11 attacks, then following Hurricane Sandy in 2012 and most recently with COVID-19. In the latter two, can you discuss the differences between BCP post-Sandy and currently with COVID-19?


Following Hurricane Sandy, the New York area hedge fund industry was the first to embrace BCP since if data was stored in warehouses and the warehouses flooded, they realized they needed to have a backup for their data.  Hence, they led the way for the broader industry who realized the importance of migrating their data to the cloud.  

With COVID-19, although a different crisis, the pandemic affirmed how essential automation is with the global alternative investment industry working remotely. Fund managers who haven’t invested in robust technology and automated processes have struggled the most operationally. Also, this was the first time many had to implement BCP, with many doing it as a knee-jerk reaction, and they will get scrutinized by investors. As a result, automation and operational resilience will become primary areas of focus in investor due diligence going forward. 


Managers have faced additional challenges capital-raising this year, due to the inability to have in-person investor meetings.  Not only have managers had to reinvent themselves and target investors virtually, but prime brokerage capital introduction groups have also had to adapt. Jeremy, can you please discuss how prime brokerage groups are launching their own electronic platforms to digitize capital raising?


As a capital introduction veteran at Credit Suisse, I am still very much in the flow of how capital introduction arms of prime brokerage groups have digitized how investors meet managers. Some prime brokerage groups, including Goldman Sachs, have developed electronic platforms designed to digitalize the capital introduction process.  This has been a tremendous benefit to both investors and managers alike. Investors can pre-select various categories to find the credentials in a manager they are looking for including a specific strategy, asset class, AUM, etc.  Believe it or not, these platforms that Goldman Sachs and other prime brokers are readying will make it easier for funds without top-tier prime brokers to raise capital. It is becoming evident that normal business will not resume for some time, so it is essential that hedge fund managers embrace these new digital channels to get allocations.


Are there any final thoughts you would like to share?


Given the current capital raising environment has been challenging for hedge funds and the COVID-19 pandemic has enhanced those difficulties, investors have become even more selective when making allocations.  Hedge funds need to demonstrate to prospective investors that all facets of their business – beyond simply just performance – are best of breed. It is critical that managers invest heavily into their operational processes and technology to maximize their likelihood of being awarded mandates. This means embracing automation and adopting best practices in areas such as operational resilience and BCP. Those managers who can evidence how well their systems have coped during the recent Covid-19 disruption will be especially poised to attract investor dollars.  

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Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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