Northern Trust Partners with youDevise to Provide Funds of Hedge Funds with Daily Portfolio Management Information in an Online Account Format

Profile

Northern Trust Corporation is a leading provider of investment management, asset and fund administration, fiduciary and banking solutions for corporations, institutions and affluent individuals worldwide. A financial holding company based in Chicago, Northern Trust has a growing network of 85 offices in 18 U.S. states and has international offices in 15 locations. As of December 31, 2008, Northern Trust had assets under custody of US$3.0 trillion, and assets under investment management of US$575.5 billion.

As part of its business, Northern Trust's Global Fund Services group is a leading third party administrator in Europe of hedge funds and funds of hedge funds, processing investments and redemptions and providing official net asset value (NAV) calculations. In doing this, Northern Trust has earned distinction as an industry leader in combining exceptional service and expertise with innovative products and technology.

youDevise Limited, with offices in London, New York and Hong Kong, is a leading provider of web-based technology used to transform institutional financial markets. One of its key products is the Hedge Fund Information Provider (the HIP), the first portfolio management system delivered online and designed exclusively for FoHFs, in order to track daily position information and evaluate investments in underlying funds. As of December 31, 2008, clients based in the U.K., Europe, and the US were using HIP to manage a combined AUM of more than US$8 billion.

Background

By year end 2008, hedge funds had approximately US$2 trillion under management, of which about half came through FoHFs, with the majority of those funds coming from institutional investors. Because the business had grown so rapidly, many FoHFs were managing their businesses using home grown Excel spreadsheets, to manually compile and analyze data from various internal and external systems. The spreadsheets required multiple manual entries of the same data and a high degree of maintenance. As a result, they were highly subject to error.

In Europe, FoHFs also were relying upon third party administrators to act as their bank, process their trades in and out of their underlying hedge fund investments, and provide end of month NAV's in their underlying hedge fund investments and their own FoHF, with the receipt of such data typically arriving weeks after month-end. In response, youDevise developed the HIP in 2006, based on tried and tested formulas and calculations, used by the FoHF industry for:

Accounting: Monitoring, reconciling and forecasting portfolio cash, payables/receivables, and FX balances;
Liquidity: Determining how much cash is redeemable from hedge funds over time and carrying out sensitivity analysis on current and projected cash balances;
FX Hedging: Calculating FX exposure and hedging needs and determining gains/losses on existing hedges; and
Front Office Decision Support: Providing up to date cash, portfolio exposure and performance information to the portfolio manager, to facilitate the decision making process.

The HIP enabled a growing number of FoHFs to replace their internal spreadsheets. Although manual data entry was still required, the HIP eliminated the need for duplicate entries, spreadsheet maintenance, quality control, and speeded the delivery and improved the accuracy of management information and data.

Business Challenge

When the financial crisis first began to stress the markets in 2008, both Northern Trust's Global Fund Services group and youDevise anticipated that funds of hedge funds would demand increased transparency from the hedge funds in which they were invested; more timely accounting of their hedge fund positions, liquidity and FX management so funds of hedge funds could better meet redemptions and move money faster in and out of underlying hedge funds; and institutional quality portfolio management systems to demonstrate their soundness to institutional investors.

These demands only intensified with the market crash towards the end of 2008, which reduced FoHF industry performance, and the Madoff scandal, which hurt FoHF credibility, industry-wide, and increased demand from institutional investors for more transparency, governance and detailed reporting.

Rather than build a proprietary system in house, Northern Trust decided to integrate the HIP into NT's online platform. This enabled data from NT's systems to automatically populate the HIP, eliminating the need to communicate data to FoHF clients via email or fax, enabling FoHF's to significantly reduce manual inputs even further.

Outcome

The combined Northern Trust-HIP solution, completed in mid-2008, represents a major step forward in management information systems for the global FoHF industry:

By fully integrating the HIP into Northern Trust's global technology platform, FoHF clients can obtain daily information about their hedge fund holdings, current value, performance, liquidity, hedging, and a detailed breakdown of assets and transactions. The information is accessible through Passport, Northern Trust's interactive web portal, which provides clients with secure access to account information and portfolio reports - all online.
On a tactical level, FoHFs no longer have to run shadow accounting and have online access to data which will have been fully reconciled against, and integrated with, the official month-end NAV. This supports Northern Trust's drive to offer comprehensive asset servicing capabilities to the global fund of hedge funds industry.
On a strategic level, the HIP enables Northern Trust clients to make decisions faster and more effectively, take better advantage of market opportunities, and demonstrate to their institutional investors the level of control, reporting and transparency that they demand. It also benefit funds of hedge funds by reducing the risks and inefficiencies associated with multiple data entry.

In July 2008, Northern Trust began signing new FoHF business, based on its integrated offering of the HIP. As the COO of one FoHF complex said, "Northern Trust is able to offer us everything we need under one roof and, in addition, we are particularly excited about the prospect of having daily portfolio management data for our funds-of-hedge-funds for the first time." In December 2008, Northern Trust was named European Hedge Fund Administrator of the Year (AUA less than US$100bn), based on its integrated offering of the HIP, as well as keynote business wins and high levels of client satisfaction.

Contact

Richard Koppel, Managing Director, youDevise Limited, at +44 (20) 7826-4301, or This e-mail address is being protected from spambots. You need JavaScript enabled to view it >; or Michael Shallo, Anreder & Company, at +212-532-3232, or This e-mail address is being protected from spambots. You need JavaScript enabled to view it