Why technology choices matter for start-up hedge funds

Firms that do not make the right choices are likely to end up having to replace systems that are not flexible enough to meet the needs of the market.
4 Jan, 2024

Launching a new fund presents a number of challenges that are often underestimated. For someone transitioning from a large institution, where infrastructure and processes were pre-established, to the self-driven world of entrepreneurship, the challenges can seem overwhelming. Considerations ranging from fund admin to technology integration, data acquisition, and team building become crucial. However, it is easy to underestimate the effort required to set up the infrastructure essential for effective trading, sound investment decisions, and risk management.

For a start-up fund, launching on schedule is key, and having a reliable portfolio/order management solution (PMS/OMS) provider that can deliver to your requirements and timelines can significantly impact success.

Making smart technology choices

Firms that make forward-looking technology choices will be in a significantly better position in terms of operating costs, their ability to measure and manage risk and understand profitability across the business. These firms will be able to constantly innovate from a flexible core infrastructure that allows them to design their own algorithms for trading signals, analyse risk the way they want to see it, and evolve with changing market demands. Firms that do not make the right choices are likely to end up having to replace systems that are not flexible enough to meet the needs of the market. Several key features stand out as particularly important for a start-up fund.

APIs for flexibility and customisation

The world of technology is changing. What firms are looking for today is the flexibility to access their risk through APIs, the ability to integrate with various data sources, leverage data science to conduct complex data analysis and flexible reporting, and tailored solutions that align with their specific investment strategies.

Automation of middle office processes

Efficiency is paramount, especially when resources are limited. Having the ability to automate middle office processes allows the fund to execute trades, manage risk, and reconcile portfolios seamlessly. This automation not only enhances operational efficiency but also reduces the need for a large team, therefore saving on resource costs.

Cost-effective infrastructure

In the early stages of a fund’s lifecycle, cost pressures are particularly acute. Low AUM means that every dollar spent on infrastructure is a sizeable portion of the fund’s overall resources. Cloud-based solutions and scalable platforms can provide the necessary flexibility without incurring substantial upfront costs, enabling start-ups to allocate their resources more strategically.

Solid and independent controls

Investors, especially in the competitive world of start-up funds, demand transparency and assurance that their investments are being managed responsibly. A PMS/OMS with robust controls becomes the backbone of this assurance. It should offer features such as compliance monitoring, risk management tools, and audit trails to demonstrate to investors that the fund is committed to maintaining a secure and accountable operational environment.

For a start-up fund, launching on schedule is key, and having a reliable portfolio/order management solution (PMS/OMS) provider that can deliver to your requirements and timelines can significantly impact success.

Roadmap to excellence

Careful evaluation of the functionality, scalability, integration capabilities, and support are essential when deciding on a solution that aligns with the fund’s strategies and growth plans. Things to consider:

Define your requirements: Consider factors such as firm size, type and complexity of assets, investment strategies, reporting and analysis requirements, compliance and regulatory considerations, and integration with existing systems or third-party tools.

Scalability and flexibility: Can the system handle the firm’s current assets under management (AUM) and accommodate future growth? Evaluate the solution’s ability to adapt to changing investment strategies, asset classes, and regulatory requirements.

User experience and ease of use: Evaluate the user interface, workflow, and overall user experience of the system. It should be intuitive and easy to navigate, allowing your team to perform tasks without extensive training or support.

Integration capabilities: This includes data providers, custodians, trading platforms, accounting systems, and compliance software. Seamless integration can streamline processes, reduce manual work, and improve data management.

Solution providers reputation and support: Seek feedback from other investment firms to gauge their experience with the solution. Also, consider the providers financial stability.

Client service and support: The support team should be reliable, responsive, and experienced in providing training and onboarding, technical assistance, customisation, and ongoing assistance. Selecting a provider with dedicated support can significantly enhance the overall experience and effectiveness of the solution.

Cost and ROI: Evaluate upfront fees, ongoing maintenance, support costs, and any additional charges. Consider the return on investment in terms of operational efficiency, improved decision-making, reduced risks, and enhanced client reporting capabilities.

Request a demo(s): Assess how well the solution aligns with or can be tailored to your investment strategies, and operational workflows.

Evaluate features and functionality: Make a checklist of the features that are essential for your firm and prioritise them based on importance. This may include portfolio tracking and performance analysis, risk management tools, order management, compliance monitoring, reporting capabilities, and integration with data providers and trading platforms.

“Quantifi rates high on ease-of-use, its unique modelling capabilities and the flexibility to define custom workflows. With Quantifi’s modern and flexible technology we can develop the system as a partnership to cater for changing business requirements.”

Sofiane Gharred, Founding Partner & CIO, Selwood Asset Management

Bring clarity and scale to your business

Quantifi’s PMS/OMS delivers cross-asset trading, front-to-back operations, real-time position management, P&L, market, credit, and liquidity risk management and regulatory reporting all on a single, integrated, real-time platform. Quantifi uses the latest technology including data science, machine learning and next-generation APIs to provide clients with new levels of usability, scalability, and ease of integration. This translates into dramatically lower time to market, lower total cost of ownership and significant improvements in operational efficiency.

Quantifi has worked with over 200 clients in 40 countries. Around half of the clients are investment managers and hedge funds ranging from small start-up funds with $50 million AUM up to very large international funds with tens of billions.

One of the aspects that sets Quantifi apart is the data science-enabled platform, enabling clients to get better insights into their markets by creating bespoke portfolio-level analysis in Excel, as well as various programming APIs. Quantifi provides its analytics as a library, which can be called through Python, Java, C#, and other languages for seamless integration into diverse systems. This allows clients to effortlessly incorporate Quantifi’s models into their machine learning and artificial intelligence frameworks, enhancing the overall efficiency and functionality of their applications.

Find out the benefits you stand to gain by selecting Quantifi.

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