Risk management is an essential part of a volatile industry like hedge funds. Asset managers must be able to identify and address risks, despite the many trends emerging in the wake of investment scandals.
Many hedge fund managers, both large and small, are now using outsourcing as a strategy. They can achieve risk management by enlisting support from asset servicing companies.
They can act as an intermediary between internal auditing and a regulating authority. Hedge funds often fail to see the glaring flaws in their own operations. It is important to look at the situation from an outsider’s perspective, just as regulating bodies from the industry and the government would. Outsourced service providers can be a cross between an auditor and regulator. Because they have the resources to resolve perceived problems, they can monitor the operation at every stage and offer valuable insight. They also want to see that the response is quick, efficient, and economical.
They are tools to promote transparency and compliance in operations.
Asset managers are faced with increasing regulation and increased transparency requirements from the client investor side as well as the authorities. They must ensure that their operations comply with all laws and policies and that they can withstand fluctuations in the financial market. Hedge funds must also demonstrate that they can get a fair return on the fees they pay. Outsourcing allows hedge funds to have access to tools that promote transparency, particularly with cloud-based data collection systems.
They are proficient in tax reporting. The increased regulation has imposed additional requirements in tax reporting. This is a challenging business. Tax services include the preparation of investor tax reports and federal and state income taxes returns. In addition, ad-hoc tax consulting services are provided and coordinated with the CPA firm’s annual review of tax to ensure compliance and order in hedge fund management firms’ books.
Outsourcing is a viable business strategy, which hedge funds should seriously consider.
