The collapse of Lehman Brothers in 2008 was a world-changing event whose consequences continue to play out in the global economy and the financial markets. For the hedge fund world, Lehman’s demise meant that fund managers could no longer rely on a single prime broker to meet all their needs—the counterparty risk was simply too great.
This changeover to multiple prime brokers, coupled with increased regulatory reporting, is forcing many hedge funds to take over functions their single primes used to handle, including order, portfolio and risk management. But building and maintaining in-house systems is costly and difficult, even for a large hedge fund. For a startup fund with little capital, it’s virtually impossible. For both, using an application systems provider (ASP) could be the answer.
Hedge fund managers of all sizes say they need an all-in-one solution with three integrated components: an order management system (OMS) with pre-/post-trade compliance, a portfolio management system (PMS) with light accounting and reporting capabilities and a risk-management system to track their exposures and stress their portfolios. But at the moment, no ASP has all three pieces on the market—all are racing to be the first to complete the puzzle.
A variety of ASP solution vendors came out of the starting gate, all with different combinations of components already in place. Some are trying to buy in missing modules, while others are developing their own. Even some fund administrators are in the field, offering extensions of their services—but they may find the real-time world of front office trading too lightning-fast for them.
Meanwhile, it’s the last lap of the race. Keep your eye on the finish line!