How to Manage the Growing Startup Hedge Funds

Do you remember Steve Cohen, an American fund manager who started from zero in 1992 and is now a hero with a net worth of $12 billion? Many new and small hedge funds, investment firms and family offices have emerged in recent years. It is relatively easy to start a hedge fund with little capital by following a proper strategy in place, just like any other business.

Very often, a new fund will allocate their money to generate better returns for the investors without identifying business needs for the future. Then, as their assets under management (AUM) and team size grow, they will discover that their primary setup is no longer meeting their needs, resulting in increased investor demand for higher returns and higher expenditures to upgrade their support system and meet new business requirements.

To solve this issue, many investment firms outsource their middle and back-end operations activities to cut costs and save time. This gives them better visibility into generating better returns in terms of market trend and outlook. In this article, you will get to know the latest reasons for choosing hedge fund outsourcing services by startup hedge fund managers and what benefits they can get.


Reasons for outsourcing by a startup hedge fund

Managers’ and investment firms’ acceptance of outsourcing extends right through the investment value chain, comprising not simply the back and middle offices but increasingly front-office activities, too, where the reason is to outsource through automation and support in core operations.

According to the survey, startup hedge fund managers are looking to outsource  hedge fund back office  and middle office operations for the nine reasons listed below:

1.Outsourcing can help fund managers manage the working environment in the current uncertain environment, which is affected by pandemics and wars across the globe, thereby supporting the remote working of the employees.

2.They can also help with more flexibility and managing the variable costs during times of rising and falling AUM.

Current reasons why fund managers are outsourcing back and middle office work to third parties

3.They provide increasing capabilities in the hedge fund industry by taking up the work of fund administrators, prime brokers, technology providers, cloud platforms, regulatory compliance, and taxation filings.

4.Hedge fund back office outsourcing also aids in the supervision of the firm's internal functions and thus tracking the fund's performance.

5.Margin pressure is the result of negative changes in margin ratios resulting in decreased fund profitability per unit of revenue earned. Outsourcing the middle office work can help the fund managers easily analyze and overcome the margin pressures.

6.There are certain legal and regulatory risks associated with hedge fund management that can be easily solved by hiring hedge fund back office services.

7.There are cyber security risks, a confidential information sharing risk, a data sharing risk and concerns about service level agreements (SLAs) that need to be checked or followed and thereby an outsourced firm can easily help in reducing third- and fourth party outsourcing risk.

8.There is a greater need to maintain and improve investor relations for a growing startup hedge fund. There is also a need for advisory and consulting services by a startup fund for the development of the fund's size, which an outsourced firm can easily provide.

9.Like every business, hedge funds also follow the supply chain, which needs to be carefully checked by the hedge fund people and is generally handled internally.

Benefits of outsourcing for a startup hedge fund

The process of planning their middle and backend operations needs can be an overwhelming and often expensive aspect of launching a new fund, a procedure that most investment managers undervalue. As a result, the following are some advantages of using hedge fund outsourcing services:

1.Saving time: Outsourcing allows investment firms to delegate the work by choosing fund administration services that may interfere with their primary investment focus.

2.Technological Access: Managers also anticipate that they will need to invest significantly in expertise and technology in order to keep up with emerging requirements in the long run, which can also be provided by hedge fund back-office outsourcing. While bigger investment firms keep their investment balance, other smaller firms seek to benefit from third-party resources.

3.Risk Analysis: In today’s world, many new startups hedge funds or investment firms hire third-party resources for their research and risk analysis activities. As a benefit, their core team can now focus more on analyzing the market and other core activities.

4.Less Cost and Stability: As the outsourcing trend increases, the benefits of outsourcing look influential and attractive to many new fund managers and investment firms seeking the advantages of cost savings and operational stability.


Therefore, any startups or hedge funds that are in an early stage or at a growing stage can take advantage of the best outsourced services because of the obvious reasons, thereby improving efficiency, maintaining healthy investor relations and benefiting from the time and cost savings.

You can choose one of the leading KPO outsourcing service providers, which is  IBN Tech  , for your data management services, financial statement preparation services, IT needs and many more.

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