Digiterre, software provider to the investment management community, welcomes the Hedge Fund Working Group’s efforts to encourage hedge funds to develop strong liquidity frameworks in order to ensure obligations towards creditors, counterparties and investors can be met at all times.
Ian Murrin, ceo of Digiterre says: “Digiterre has previously supported the work of the Hedge Fund Working Group in its efforts to eliminate operational risk and most recently in its endeavours to encourage firms to develop strong liquidity frameworks. The recent stressed market conditions make this endeavour more important than ever.”
“For funds with a lock-up period, the ability to report on the asset value coming out of lock-up in the immediate and short term future is essential to developing a liquidity management framework. We have helped many firms to get a handle on this data with our dCRM (workflow and relationship management system) and accompanying Fund Flows Module, which enables managers to track the current holdings and transaction history of each investor in each of their funds”.
The Fund Flows Module imports investor transaction data and monthly NAV per share data into dCRM from files provided by administrators. Each transaction is assigned to an investor and the system aggregates transactions to determine the holdings of each investor.
With investor transaction data at their fingertips, firms have the basis for building a strong liquidity framework. However administrators won’t have all the data required to produce comprehensive liquidity reporting.
“Enriching the data is essential”, says Murrin. “This is where a tool like the Fund Flows Module comes in. While it can be done manually, you can also use the module to base lock-up end dates for subscriptions on share class rules. Furthermore, when processing outflows (redemptions, transfer outs) the module can match each outflow against a corresponding inflow. Doing all this in Excel is impractical and error prone. dCRM’s Fund Flows Module does this automatically once configured”.
The data can be filtered to produce a liquidity report that will display not only the asset value coming out of lock up in the next six months, but also the investors that have subscriptions that are close to reaching lock-up end dates.
“The feedback we’ve received from clients is that the accessibility to the data and the ability to report on it at the click of a button has led to increased communication between fund managers and their investors relations teams, who are producing the reports”, says Murrin. “IR people are able to advise fund managers based on the reports, profiling their investor base and analysing behaviour in order to determine how much is likely to be redeemed”.
As the Hedge Fund Working Group points out, a well developed liquidity management framework will help firms mitigate the risk of having a liquidity profile of the firm’s investments that does not align with their obligations.