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For hedge funds RFA outlines best practice guidelines

Wednesday, July 21, 2010
Opalesque Industry Update - Richard Fleischman & Associates (RFA.com), the premier provider of outsourced technology and IT services to more than 400 alternative asset firms representing over $100 billion in assets under management, recently cosponsored an event geared toward hedge fund advisors and prime brokers to discuss recent developments concerning the industry, with a particular focus on sound operational processes that drive business sustainability. RFA, along with Omnium LLC, a global provider of administration and middle-office services for hedge funds and financial institutions, held the event at The Yale Club in New York City.

With a recent study by the Tabb Group indicating that nearly half of hedge funds polled felt that operational controls was a top concern of investors, Donald Previti, Director of Business Development at RFA, noted to the more than 70 participants that fundamental shifts in the market demand a strong technology and operational foundation, both of which add direct value to business and help attract and retain investor capital.

To ensure that firms maintain a sound operational process and sustainable business model that preserves corporate reputation and investor trust, Mr. Previti, outlined The Big 8 Standards of Business Sustainability.

The Big 8 Standards of Business Sustainability include:

* Creating a “Risk Mandate” that ties directly into a firm’s Corporate Code of Conduct
* Establishing the need for Business Neutral Compliance and Risk Officer that does not report to the investment team
* Creating a cross functional Compliance Team that includes executives, business process owners, IT and administrative personnel
* Mentoring new employees to ensure complicity and adherence to the firms’ written code of conduct
* Testing and validating all processes and procedures internally and with any relevant third parties including prime brokers, consultants or other custodians
* Engaging an outside specialist to augment the internal expertise of C-level executives
* Documenting a mission statement that clearly articulates the company’s culture of compliance
* Ensuring that the culture of compliance be a determined, coordinated and cohesive approach across all departments that is strongly sanctioned and supported by the highest levels of the firm

Ann Marie Davis, Head of Global Operations at Omnium, underscored Mr. Previti’s principles during her presentation by noting a large increase in operational due diligence performed by fund investors. “It’s imperative to be agile to support clients as they’ve needed to quickly adapt,” she said, adding that companies must have requirements for comprehensive and integrated framework to manage trading and business operations, as well as the appropriate checks and balances and system integration from front to back.

The third speaker at the event, Dr. Paul Michael Viollis of Risk Control Strategies, pointed out that investors are more concerned than ever about protecting their shared electronic information. “They’ve incorporated investigative due diligence into their decision-making to guard against fraud and potential terrorist connections,” he said.

“In the last two years alone, we’ve seen tighter regulatory and investor scrutiny, the need for enhanced reporting capabilities, stricter privacy laws that require enhanced protections for client information and intellectual property, and demand that all this data be fully encrypted and accessible globally at any time,” said Mr. Previti. “The importance of creating a culture of compliance and sustainability within your firm to make sure that you protect against future risk is essential to your company’s success. If you have strong portfolio performance but weak technology, operational and compliance practices, your firm is set up for failure.”

All three speakers stressed the proactive and vital involvement of all employees in adapting true business continuity procedures, adding that employees should be professionally trained on their responsibilities.

“There is much greater demand for accountability across all business lines and there must be a greater awareness of how all the operational processes of a firm work together in a cohesive, systematic and repeatable way to preserve performance and protect a firms corporate reputation and investor trust,” said Mr. Previti. “When people, processes and technology are working in a systematic way, an enduring operating model emerges.”

About Richard Fleischman & Associates (RFA)
Established in 1990 and headquartered in New York, NY, Richard Fleischman & Associates is a trusted technology advisor to over 400+ firms specializing in private equity, alternative asset firms, offering both turnkey IT solutions and on-site and remote monitoring staffed 24/7/365. As a full-service technology-outsourcing provider, RFA delivers expert service by its team of more than 150 expert IT consultants. RFA maintains a world-class data center in Purchase, NY, providing fully equipped office and trading desk space, disaster recovery and business continuity services. It also operates Class A fully staffed offices in Boston. For more information, visit Source
-KM

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