Mirrored Accounts solution for parallel funds

Business Problem:

Our client wished to introduce a series of new managed accounts and/or leveraged funds based on their existing hedge fund range. It was proposed that each new order raised for the hedge fund would be automatically “Mirrored” to the related managed account using a series of parameterised business rules.

 

The existing “Mirroring” process was highly manual and involved a combination of ad-hoc phone-based notifications of hedge fund orders by the fund manager, email notification of any net contributions from the hedge fund clients, input into/export out of orders from Latent Zero Tesseract, and the mnual population and verification of Excel spreadsheets.

 

This operational model was prone to oversight and error, proved not to be scalable and caused significant performance divergence between the hedge funds and the Mirrored funds, in particular for those funds that traded more actively. This had in the past led to a breach of their contractual (IMA) obligations and almost led to a withdrawal of capital from the funds.

 

A business and technical solution was therefore required to allow the business community to take on these new funds aggressively but in a controlled and scalable way. This solution would also need to play a pioneering role in the rollout of a service oriented technical architecture for the wider organisation.

 

ReformIS Solution:

ReformIS were selected to undertake a programme of tactical and strategic work aimed at reducing the risks of the existing process and providing a solution that facilitated the scalability necessary for ‘Mirrored’ funds to be greatly increased in number. This involved a ReformIS on-site team of business analysts, technical architects and development consultants who were tasked with replacing the existing manual mirroring process with a series of business and technical services. These services would automatically calculate the potential orders for one or more mirroring funds, based upon orders applied to a mirrored fund, or a net contribution into the mirroring fund.

 

The solution also provided a means of creating, amending and cancelling orders for mirroring funds, either as a result of a net contribution to these funds or the placement of orders for the funds they are mirroring. This was achieved by apportioning any inflow or outflow across the whole portfolio or subjecting the orders to pre-defined logic using additional position data and exchange rate data sourced from the client’s Investment Book of Records.

 

A key measurement of the success of the ReformIS solution was its ongoing ability to keep within the funds designated tracking error (the allowed tolerance between the Fund being mirrored and the Mirrored Fund) which guaranteed the avoidance of fines and any further loss of custom.

 

Key Features:

The design of the Mirrored Accounts solution is based around the Service Oriented Architecture (SOA) design paradigm. This allows for the integration of multiple, disparate and technology diverse functions as shown below:

 

 

The architecture of the ReformIS solution is shown below: