New Managers June 2012

Q&A - Sapient: Hedge funds must face changes in central clearing and in collateral management.

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Sapient: Hedge funds must face changes in central clearing and in collateral management

Mark Israel

Mark Israel helps lead the Investment Management practice at Sapient Global Markets, in Boston. Sapient is a consultancy firm that tackles key issues within financial services. It does a lot of work with regulatory bodies, central banks, and other market participants such as clearing houses.

Israel talks to Opalesque about some the operational challenges that new hedge fund managers must deal with. He also comments on the hedge fund industry's ability to recycle.

Opalesque: What operational challenges must new hedge fund managers deal with nowadays?

Mark Israel: One of the things that we are seeing right now from the operational side is the changes in central clearing and in collateral management, which will have an impact on anyone who trades derivatives, including hedge funds.

Right now, there are sweeping changes of going into central clearing and how that is going to affect tri-party agreements all the way through to their ISDA agreements, and what they're dealing with, and then how they deal with the collateral, and how they actually manage their collateral going forward. We see that creating an interesting dynamic.

Q: Tell me more about this new dynamic.

Mark Israel: That dynamic affects a few things. One, it affects all their processes all the way up to the portfolio manager.

"That means people who make the investment decisions will have to change their measurement techniques."

We are seeing people take the collateral and the swap in the same strategy and same measurement strategy, so they can ac......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.