Citi Group has introduced a new operating model to help managers launch, manage and build successful hedge funds without making a huge investment in hedge fund technology and non-core functions.
Dubbed Citi Prime Finance Hedge Fund 3.0, the outsourcing and partnership framework is designed to help managers achieve greater efficiency across their support functions and infrastructure. This allows managers to focus more on their core competencies, namely, investment management, investor relations, and hedge fund marketing, according to an article in Marketwatch.
Hedge Fund 3.0 will hopefully allow fund managers to maintain strict control over a full range of processes with a smaller team and a less cumbersome technology model.
As hedge fund portfolios expanded and became more multi-asset and more global, funds could no longer rely upon a single prime broker to support trading and monitoring positions and balances. They had to build or buy their own trade, execution management and portfolio management platforms, backed by proprietary data centers and permanent, in-house IT development and support personnel. This led to higher infrastructure and IT costs.
The Citi Prime Finance Hedge Fund 3.0 model may help hedge fund managers control or reduce these costs by providing a network of key service providers in key areas including:
– Business process outsourcing for middle-office, collateral management, cash & treasury, and reference data management functions;
– Specialist HR and benefits brokers, including professional employee outsourcing (PEO) options;
– Off-premise IT services, often leveraging cloud technologies to reduce IT costs;
— Knowledge process outsourcing (KPO) allowing hedge funds to outsource basic data analysis and information gathering to support risk management and ground-level investment research.
“While the Hedge Fund 3.0 model will benefit firms that are about to launch or are in the early stages of their development, the model is also useful for funds with established infrastructure and resources,” said Sandy Kaul, US Head of Business Advisory at Citi, in a press release. “These firms can think strategically about the use of outsourced partners, especially when facing trigger events, such as expansion to larger office space, replacing end-of-life equipment, moving to multi-currency operations, or launching a new investment strategy.