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Providing a complete asset servicing offering for hedge fund managers

March 2024

26 March 2024 - Peter Kane, Head of Hedge Fund Services – North America, Citco Fund Services (USA) Inc., explains some of the challenges and opportunities facing the company and its clients.

How have economic conditions affected the hedge fund market?

All in all, despite the various macroeconomic headwinds last year and interest rates being at a two decade high, hedge funds achieved double-digit returns in 2023. This has been led by Equity and Multi Strategy strategies principally, however, overall hedge funds administered by Citco achieved a weighted average return of 14.5% for 2023, in contrast to the previous year’s figure of -7%. And overall, 80% of funds achieved positive returns for the year.

Market volatility increased and in keeping with that, Citco processed more client trades than ever before in 2023, breaking the record set the previous year. Meanwhile, treasury payments set yet another new record in 2023. All of this becomes very relevant for asset servicers in the context of quality of their product suites and toolkits in supporting those products.

The economic conditions have played a role in Asset Mangers looking to streamline costs, with a huge focus on efficiency, transformation and data. As such, we are seeing a notable uptick in the degree to which managers are willing to outsource key services, like treasury, collateral, trade matching, risk, data services and more besides. With Citco’s product suite and technology stack evolving strongly, we are well placed to assist managers as they continue on their outsourcing journeys.

What have been the biggest drivers of growth within your business?

Number one is the demand for increased outsourcing. Citco offers a broad suite of ancillary products & services, we have continued to evolve that product suite and invest significantly in developing technology solutions in support of those products. Given the steadily evolving market shift towards an outsourcing model, we are well placed to assist managers with that evolution.

High quality, golden source data is also a significant factor. Underpinning the entire industry is the demand for clean and timely data, the importance of which will continue to increase. Managers require an asset servicer who can deliver data real time, cleanly and directly into their ecosystems. The providers with superior data and technology offerings will lead the way in growth. We feel very well placed and we will continue to invest significantly into our Data and technology solutions.

Another aspect is increasing complexity. As managers increase diversification across asset classes, strategies, regions, legal structures and fee models, the complexity involved in servicing those managers will continue to proliferate. Managers will continue to demand real time access to best in class product offerings, data and technology solutions. At Citco we excel in complexity, the market understands this and as the environment becomes more and more complex, we see significant growth opportunity both in terms of securing the most complex new mandates and through conversion opportunities from our competitors. Those conversion mandates will continue to be a significant focus within our overall growth strategy.

Which are the most significant challenges in the hedge fund industry right now and how can they be best mitigated?

As managers increase in investment diversification, operating models now are increasingly complex. Managers are adopting and designing efficient workflows, better data solutions and greater automation in order to generate higher quality real time data for themselves and their investors. This drive to optimize and streamline operational processes, keep pace with or even ahead of that complexity, will be key going forward.

Citco as an asset servicer with a global presence and widespread multi asset class expertise can help provide knowledge of operational best practices beyond a manager’s traditional focus. We can help build highly automated workflows and data solutions with our product suite and technology stack , enabling managers to focus on what they do best, which is generating Alpha for their investors.

Regulatory reporting obligations also continue to grow for managers across regions and jurisdictions. We will continue to partner with our clients as we build out efficient and timely reporting solutions to assist them meet their regulatory reporting obligations.

Where do you see the most significant opportunities for growth in the coming year?

Citco expects managers to continue to focus on outsourcing, data solutions and navigating complexity. As managers continue to streamline and transform operations models, assets servicers like Citco have huge value to add as managers continue on those journeys.

Hedge Funds will continue to digitalize their operating models, many are increasingly using next-generation technologies to improve their investment processes, augment customer experiences, and streamline operations processes. We will continue to develop our tech stack, data and AI solutions in order to support that evolution.

We grow our business in no small part through consultative partnerships with our clients. We call it the ‘Citco way’, it has been and is a key growth driver for us, and we will continue to passionately partner with our clients throughout 2024 and beyond.

This article was originally published in Hedgeweek

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