"The current environment represents a perfect storm for hedge fund managers, as investor demands for transparency and operational reporting are increasing, management and performance fees are decreasing," said Sameer Shalaby, CEO of Paladyne Systems. "In response, comprehensive hosted solutions and specialized service providers will be the driver of a trend in which fund managers shift away from building technology and staffing infrastructure and move aggressively to outsourcing solutions in the areas of IT, software, and operational support."
As the outsourcing trend gains momentum in 2009, the paper predicts an increasingly important role of fund administrators. In particular, fund administrators will be required to expand their services offerings to include client-facing technology, intra-day reporting, and middle-office services in order to stay competitive, according to the paper. As a solution, fund administrators may team with a turn-key hosting provider, to offer clients a "shared" platform combining technology and middle-office services. This technology and services offering will result in considerable productivity gains, improved client retention, and increased revenue for the administrators, according to the paper.
Mr. Shalaby concludes: "The combination of outsourced software, hosting services, IT and application support, market data, and robust disaster recovery at a fraction of the current in-house cost structure is far too compelling not to become the standard operating model for the hedge fund industry. At the end of the day, the primary beneficiary of this new outsourced operating model is the investor, who is assured of greater transparency through better reporting and tighter oversight based on the integral relationship between the operations of the funds and their service providers."
