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Understanding The Hedge Fund Maturity Model

Understanding The Hedge Fund Maturity Model

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Published by mbirimifarai
Citi whitepaper outlining framework for discussions on hedge fund evolution.
Citi whitepaper outlining framework for discussions on hedge fund evolution.

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Published by: mbirimifarai on Apr 30, 2012
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04/30/2012

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A Prime Finance Business Advisory Services Publication
Planning for Change:
Understanding the Hedge Fund Maturity Model
December 2010
®
 
A Prime Finance Business Advisory Services Publication
A
 
A Prime Finance Business Advisory Services Publication
A
As the Alternatives industry prepares or increased capital fows, Investors and Regulators lookincreasingly at hedge unds’ organizational and inrastructure maturity
As 2011 approaches, Hedge Funds are poised for a new dialoguewhich will probe underneath the often well guarded covers of amanager’s organizational, operational and technology makeup.Both end Investors and Regulators, including the rapidly growingSEC Asset Management Unit, are rening their understandingand perspective on what constitutes “best practice” in a cornerof the Asset Management industry that has grown up rapidly,and experienced and survived the lows of the credit crisis period.Global hedge fund industry AUM is currently near the $2 Trillionmark again. New managers are emerging from proprietarydesk ‘spin outs‘, a revitalized start-up market and private equityexpansion into asset management. This together with evergrowing due diligence on existing funds is increasing the entireindustry‘s focus on how a manager is structured. Managers able todemonstrate a robust organizational, operational and technologyinfrastructure are able to cite this as a differentiator in terms ofsecuring new mandates and growing capital.
How should a hedge fund be organized? What should the major functions & roles within a manager be? Which departments arerequired as a Fund grows balances? How does globalization affect the operating model and controls? What systems architectureis required to adequately support Investment Management and trading, and when do the sunk infrastructure costs start to impact the viability of the manager? What level of corporate governanceis required to ensure succession and growth? 
These questions, the surrounding debates and other concernsare being discussed and analyzed within hedge funds and byconsultants, investors and regulators, but there are no ofcialguidelines. Moreover, the answer to key questions change basedon the size of the manager and their assets. Since the demise ofLehman in 2008, all sides of the industry have been in a reactionarystate of survival and stabilization, with key players needing to stopand reect on the evolving direction of “Hedge Funds”.This
“Hedge Fund Maturity Model”
whitepaper takes a bestpractices approach and lays out a framework and taxonomy fordiscussing hedge fund evolution. This work is based on detailedanalysis and benchmarking of the different types of fundsthat exist in the new landscape. It attempts to highlight the keyorganizational, operational and technology transitions that takeplace at different stages of a rm‘s development and provides atemplate for understanding the inner workings of a manager asAUM grows and as the rm‘s scale of operations advances.Citi Prime Finance‘s Business Advisory team has based this modelon a comprehensive proling exercise. This maturity model willbecome the foundation for our new full range of business advisoryservices covering management consulting, operational consulting,start-up services, and technology consulting.For more information on our services, please contactprime.advisory@citi.com
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