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Hedge Funds Should Ditch Spreadsheets and Emails

Task tracking and documentation archiving are routine matters for every business. Despite the availability of new management tools, a startling 70% of companies manage, archive, and process their digital data via email systems. Manually updated spreadsheets, the workhorse of any financial firm, are utilized by 75% of businesses.

Large firms, of course, turn to enterprise software solutions to address these concerns. For small-to mid-size firms, software-as-a-service (SaaS) platforms are often the most cost-efficient solutions to data management and control. For asset management firms, particularly in operations and compliance departments, managing everyday information and workflows reach critical importance for risk control, legal issues and liability concerns, as well as auditing and reporting.

Spreadsheets Are Now Failures Waiting to Happen

When Microsoft Excel first hit the market, it was a revelation for the financial industry. With core features like data recording and sorting, formula-building, portability, and presentation options, the software offered the opportunity to move beyond the pen and pad on the one hand, and expensive IT programming on the other. To this day, even large firms use spreadsheets for day-to-day management.

With the increase of computing speeds and data flows, however, spreadsheets have fallen behind as an effective means of managing information. Data needs to be manually entered and managed, formulas require risky updating when strategies change, and the ever-present danger of a bad cut-and-paste can throw everything into chaos. Their flaws have been obvious for some time, especially in light of alternative platforms.

Security and collaboration present additional challenges. Often, multiple staff require editing access, raising the possibility of changes occurring without a full team being aware of them. The sheets are often emailed and shared without sufficient tracking or proper permissions administration. Worse still, locking down the data to limited access is often employed as a band-aid measure for security, which ends up creating information silos that reduce teamwork and collaboration.

Document Archiving Needs Better Rigor and Structure

As we all know, asset management is a blizzard of paperwork. From client reporting to process documentation, risk control policies to compliance, the volume of documentation has created an entire industry itself for data management providers. The ability to access this information is critical within and across teams, yet many firms have antiquated filing systems—both hardcopy and digital—that resist sharing. Finding the information also presents a challenge, complicated by who developed it, where it is stored, and how it is shared. Studies show that investment managers can spend 18 minutes on average looking for a single critical document, either through searching on internal networks, asking associated staff for help, or simply trying to remember where they stored it.

Documentation becomes inherently complex in the financial industry due to required interactions with multiple entities, each of which can have their own documentation needs and formats. Reconciliation in operations, for instance, can entail interacting with dozens of banks, custodians, and other counterparties, none of which utilize the exact same documentation formats or software platforms. While the option of creating a single format system may not be feasible, unifying the storage and accessibility of these materials under a single software platform can reduce search time and prevent data loss.

Key Person Risk Includes Data Loss

Asset managements are already keenly aware of key person risk. Regardless of firm size, key person dependency covers more than the resident investment maverick but also the staff members responsible for the vital functioning of the firm. Key persons that tend to use their own processes for data storage and information can put the firm at risk when they leave. Vital information stored in private emails, hand-held devices, or personal notes can become lost when a key person leaves. If the key person has been a long-term asset to the firm, the volume of history they do leave behind can become buried in an overwhelming, unsearchable archive of material.

Legacy systems that lack scalability—all those spreadsheets!—contribute to the problems of inefficiency and lowered productivity. What worked when options were extremely limited cannot keep pace with today’s information-intensive environments nor the speed with which decisions need to be made. Many manual systems often come about on an ad-hoc basis. What might begin as a one-off process to accommodate a unique situation, gives rise to more situations demanding unique solutions.

With time, these processes become endemic and seemingly unfixable due to the magnitude of a course correction, but it can be done. In fact, firms should view their data management as an important risk control measure that improves efficiency and productivity.

Automation and Transparent Systems Improve Productivity

Perhaps the biggest downside to spreadsheet management is the chronic manual updating. Most spreadsheet programs do not lend themselves to real-time data updates. Today’s cloud-based data management platforms, however, allow for instant access to data changes from third-party providers. Instead of wasting time with low-productivity data entry, staff can spend more time monitoring and analyzing data. Presentation of data also has more flexibility in these systems, enabling firms to create data visualizations and reporting specifically tailored to client requests and needs.

Cloud-based computing also improves scalability of operations. With near-unlimited storage and processing resources, the expanse of a client base, fund families, or compliance issues become less challenging infrastructure issues. The cloud also operates with expansive API capabilities, allowing firms to choose the applications they want without sacrificing utility or limiting options.

For key person dependency, identifying information-sharing tools that suit their needs and requiring their use can be a crucial component of reducing information loss. As processes become documented, the interactions and role of key persons should be included with checklists, tracking, review, and verification needs. In this way, the key person role and knowledge becomes part of the common data resources available to all the relevant staff without the need for key person gate-keeping.

For many firms, shifting to new platforms can be daunting. While more automation and technologies with better scalability is preferred, accessibility of necessary data, documents, and processes remains the key issue for productivity and efficiency. Absent unified systems, information management platforms that integrate access of the various silo-ed systems are the next best thing. With a sophisticated platform, project management is more of an umbrella operation that unifies access to other programs, data storage, emails, compliance and policy documentation, and more. A system with a flexible dashboard interface that provides access to various resources can reduce unnecessary searching, increase collaboration, and allow more operational efficiency.


Frank Caccio is Founder at OpsCheck


The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group

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