Increase operational efficiency
Kristoffer Fürst6 min read
Hedge Fund Order and Portfolio Management Software
Hedge fund software has 2 primary purposes:
- Automate workflows and portfolio monitoring (save your team time)
- Provide proof of governance to investors
Any capabilities that don’t work towards either are unnecessary distractions you probably don’t need.
Most established vendors will help you check the second box. When it comes to automation, the best hedge fund software materially outperforms alternatives through the following:
- Fast & smooth order entry workflows
- Monitoring your portfolio to set thresholds
- Making you less dependent on the vendor for changes
- Reducing manual data entry
- Reducing the need for spreadsheets
Functional capabilities of hedge fund software
Software for hedge funds has 2 primary functional areas: OMS and PMS (acronyms explained below). OMS and PMS can be two different systems or combined into one front-to-back system.
We strongly recommend a cloud-based combined software because it reduces the number of integration points and gives you everything you need from one provider. Simple, efficient and cost-effective. Limina provides all the functionality described in this article.
Operations: hedge fund order management system (OMS)
- Smooth order entry and portfolio construction
Regardless of your investment strategy, entering orders should be as fast as possible. The best hedge fund OMS don’t even require you to “enter an order” and will instead generate the orders from the minimum information necessary you provide the system. E.g. increasing a holding by just entering a target exposure %. - Simple order execution / trade execution
Routing orders to brokers, execution management systems or outsourced trading trade desks is ideally done with 1 click and fills fed back in real-time. The trading workflow becomes much smoother with the hedge fund trading software integrated into the OMS. - Portfolio monitoring
All oms systems for hedge funds have features that allow you to monitor portfolios. However, not all systems enable you to see the portfolio from different views with the flick of a button. Systems like Limina can show you positions and cash, including the impact of:- all simulated trades
- routed trades (not simulated)
- executed part of trades (excl. simulated and non-filled portion)
- allocated trades (excl. all working and simulated) orders
- only trades sent for settlement (including all orders in flight)
Operations: hedge fund portfolio management software (PMS)
- Connectivity
Sending trades to fund admin, reading subscriptions/redemptions into the hedge fund portfolio management system and managing any OTC instruments or bespoke instrument parameters. - Reporting
Creation of reports for internal stakeholders, regulatory needs or data extraction for investor reports. - Reconciliation
Reconciliation (part of shadow NAV, see below), usually at least cash and positions. Sometimes, reconciling trade (taxes & fees), corporate actions, P&L, and NAV is also a good idea.
Again, most hedge fund PMS cover all of the above. The main difference lies in how automated the process is.
Governance needs
Governance needs come in 3 categories:
- Shadow accounting
- Compliance
- ODD
- Misc
Shadow accounting
When evaluating a PMS for your hedge fund, it’s important to remember why shadow accounting is required. The goal is to prove that a duality check of the administrator is in place to ensure no errors happen. To that end, producing a shadow ledger is often not required. Shadowing the NAV and reconciling cash, positions, and P&L is usually satisfactory.
Key differentiator: A solution that lets you do what’s required – and not more. You don’t want your precious resources spent doing more than what’s necessary.
Proving compliance
With the software's pre-trade and post-trade compliance controls, you can prove to investors that you follow your investment mandates.
Key differentiator: Users should be able to configure new compliance rules easily in minutes. This should be the case even if the rules are based on non-standard data (e.g. specific ESG parameters).
Operational Due Diligence
Proving operational due diligence is much broader than a hedge fund PMS. Limina comes with an operations hub that cover:
- Task and workflow manager
Consolidate all tasks, checklists, calendar reminders and workflows in one place. - Knowledgebase for Operations
Make handovers simple by having all documentation up-to-date in the same place that operations manages their day. - Process audit
Show investors, auditors, ODDs and regulators that all processes are documented, tracked and reported.
Other governance requirements
- Audit reports (trade logs, access logs, change logs, etc.)
- Portfolio risk reports, depending on what you’re required to produce (exposures, VaR, scenarios, etc). Risk is not always part of portfolio management software for hedge funds. It saves you cost (one vendor only) and time (no integrations) to have risk as an integrated part of the PMS.
- Granular permission controls (read/write) per functional area (compliance, trading, etc) and portfolio (fund, risk mandate, strategy, etc).
Automation functionality of the best hedge fund software
Beyond what we’ve already discussed, there are 3 areas of automation where various hedge fund management software differ.
Reduce reliance on spreadsheets
Spreadsheets are great tools for specific monitoring, e.g. if the Front Office wants to view their portfolio in a certain way. To enable the most efficient use of spreadsheets, ensure that a solution you choose has a native Excel plug-in (not just an “export to xlsx”-feature).
Secondly, ensure that spreadsheets aren’t used in workflows. A workflow can include formatting data, performing a reconciliation, etc. Doing this type of work in spreadsheets wastes your team's time, and software can automate it fully.
Reduce manual tasks (controls or data entry)
Anything that can (or could) reside on a calendar or that can be described as ”check that” should be automated by software. In our experience, when you start to look, you’ll find a surprising number of tasks that fall under this category. It’s rare to find systems that can automate even half.
Limina might not always be able to get you to 100% automation, but we’re closer than most. We've saved managers up to 4 hours per day per person.
Faster & cheaper integrations
To our knowledge, only one system (Limina) allows you to build your own integrations. Even if a vendor has hundreds of “out-of-the-box integrations”, there are usually integrations that you want to have but that aren’t covered. You’re then left requesting development efforts, which can take months and typically cost thousands of dollars annually.
With Limina, you can create imports or exports in 3 minutes. No more reliance on vendors and no more costs for integrations!
How to evaluate different hedge fund software providers
To recap, there are two parts to evaluating software:- Functional coverage
Evaluating functionality is straightforward. A system must support your trading workflows, compliance rules, asset class, etc. In all honesty, most vendors probably will. - Automation
Hedge fund asset management software can enable automation in many ways. I.e. it’s not just a feature checklist, which makes it hard to evaluate. We recommend asking vendors to share recorded videos (not demo live) of how they enable automation in each functional area (order entry, shadow accounting, etc). This allows you to compare vendor answers in each area by watching the recordings in one location for all vendors, then the next area, etc.
If you want more tips and tricks on getting the truth out of vendors, we’ve created a free tool you can use.
Explore an automated hedge fund system
With Limina, you can spend less time on workflows.
