Transcription
Hedge fund launchconsiderationsReaching new boundariesInvestment Management
“ There are people who make things happen, there arepeople who watch things happen, and there are peoplewho wonder what happened. To be successful, youneed to be a person who makes things happen.”— James LovellAmerican AstronautAs used in this document, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure ofDeloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.
Table of contents2Our point of view4Target operating model considerations5Organizational design considerations6Technical architecture considerations7Regulatory and compliance considerations8Roadmap for fund launch considerations10 How Deloitte can help11 Our value proposition12 ContactsHedge fund launch considerations Reaching new boundaries 1
Our point of viewThe launch of a hedge fund (“fund”) requires takinginto consideration five unique characteristics of thefuture enterprise. A structured review of these aspectshelps provide management with an understanding ofthe go to market alternatives that both meet businessand regulatory requirements and the gaps that requireaddressing before the launch. This understanding willhelp prepare management to make informed decisionsregarding the future state of the enterprise, including alaunch roadmap.12345Target operating model considerationsOrganizational design considerationsTechnology architecture considerationsRegulatory and compliance considerationsRoadmap for fund launch considerations2
1Target operating modelconsiderations Identify and categorizeoperational functions anddevelop model alternatives–– Consider options toinsource and outsourcefunctions and the costs andbenefits of each–– Consider which functionsthe parent/predecessorcompany may continue tosupport, as applicable–– Consider the impact ofthe ‘Volcker Rule’ onmodel design options,as applicable Assess capabilities of key serviceproviders, including primebrokers and administrators2Organizational designconsiderations Leverage operating model toidentify human capital needs–– Establish plan for bringingonboard any key resourcegaps for launch Develop organizationalstructure alternatives3Technology architectureconsiderations Develop data strategyand consider technologyarchitecture alternatives Consider what datamanagement needs toinsource vs. outsource to aservice provider Consider specific system needsand develop plan for vendorselection4Regulatory and complianceconsiderations Determine what legal entitiesmay need to be created Select solutions and developregulatory reporting solutionarchitecture (e.g., Form PF,Form PQR, AIFMD) Establish relationship withlegal counsel, consider futurefund structure options andtheir specific regulatoryrequirements Establish a plan for registration,development of funddocuments, and a complianceprogram5Roadmap for fund launchconsiderations Establish Transitional ServicesAgreement (TSA) needs,as applicable Develop launch plan withtimeline and key milestones Identify launch risks anddevelop mitigation strategyand contingency planHedge fund launch considerations Reaching new boundaries 3
Target operating model considerations12345Target operating model considerationsOrganizational design considerationsTechnology architecture considerationsRegulatory and compliance considerationsRoadmap for fund launch considerations4The fund should define its target operating model based onits strategic needs, growth plan, and technology capabilities.For each of the functions in the target operating model, thefund should consider the functions that will be performedin-house as well as the functions that will be performed bythird party or affiliated service providers.Key considerations In defining its target operating model the fund shouldweigh alternatives, including:–– Centralized vs. decentralized–– Internal vs. external–– Functionalized vs. productized The functional model should incorporate a locationstrategy, including the advantages and disadvantages ofcenters of excellence as well as the time zone coveragerequired for each function For outsourced functions, the fund would need toconsider defining and executing a service providerselection and oversight criteria For each third party relationship, service level agreementswould need to be defined For each function, defining a comprehensive governancestructure in terms of responsible, accountable, consulted,informed (RACI) matrix should be consideredTarget operating model considerations:Functional gap analysisThe fund should perform a functional gap analysis that willprovide descriptions of the current state processes, futurestate activities, and areas for consideration as the fundimplements the future state design. Areas for considerationare typically grouped by the associated impact to people,processes, and technology. Function: Major activity being performed by a functional area Current process: Description of what the fund is currentlyperforming for each function Future state: Description of activities to be supported in thetarget state operating model Areas for consideration: Impact to people, process, andtechnology to consider in implementing the future state
Organizational design considerations12345Target operating model considerationsOrganizational design considerationsTechnology architecture considerationsRegulatory and compliance considerationsRoadmap for fund launch considerationsThe fund will need to define its organizational structure inline with investor, business, and regulatory requirements.This includes a governance framework, based on thetarget state operating model, with respect to its internaloperations and the various service providers.Key considerations Model organizational structure alternatives–– Alternative organizational structure models shouldbe evaluated to identify the best fit for the fund’simmediate and long term business needs Third party oversight–– The organizational structure should addressoversight ownership of third party entities(e.g., service providers or sub-advisors) Human capital needs–– The fund will need to appoint leadership and assessthe staffing requirements for the new entity. Thisassessment includes identifying staffing needs forfunctions that may not currently exist or for whichthe fund has relied on the parent/predecessorcompany, if applicable(e.g., HR services, accounting, operations, and IT)–– Management should consider what positions arerequired to be part of the spun off entity from theparent company and what positions should beincorporated into the TSA–– A suite of HR services (e.g., benefits, payroll, new hireon-boarding, termination, training, and education)will need to be deliveredHedge fund launch considerations Reaching new boundaries 5
Technology architecture considerations12345Target operating model considerationsOrganizational design considerationsTechnology architecture considerationsRegulatory and compliance considerationsRoadmap for fund launch considerations6The target state operating model including parent/predecessor if applicable, service provider systems and serviceprovider systems and the technology capabilities are keydrivers for development of a technology architecture. It isimportant to prioritize system and data needs and identifysolutions that should be in place for day one of the launch aswell as a strategy for enhancing the architecture as any TSAslapse and business requirements evolve.–– Management should consider what systems and datawill be required at launch, and what data should bemanaged internally vs. data that may be managed by aservice provider–– The strategy should minimize data movement, identifythe golden copy for key data, such as pricing dataand security information, and provide a framework forcontrolling and sharing information–– Data security and privacy and regulatory requirementsKey considerationsare other key drivers for development of a data strategy The technology architecture should align with the futureand technology architecturestate operating model For data and systems required in-house, vendor shortlists–– For functions that will be insourced, data and systemsshould be developed and a vendor selection plan developedrequirements should be documented, including Data and system needs should be a key component ofidentification of data providers and data transformation, TSA negotiationsenrichment, and integration needs–– Management should consider the costs and benefits–– For functions that will be outsourced, reporting, andof relying on parent/predecessor company systemsdata feed requirements should be consideredin development of the TSA, including investor and An overarching data strategy should be developed to helpregulator perception of reliance on parent companyensure data integrity and security from day one of the launchsystems and the expected degree of technical supportthat the fund may receive from the parent company
Regulatory and compliance considerations12345Target operating model considerationsOrganizational design considerationsTechnology architecture considerationsThe fund may fall under the Advisers Act of 1940 (Adviser’sAct), and should understand the reporting, governance,and recordkeeping responsibilities of a registered adviser.The fund should also consider implementing a leadingpractice compliance program and may need to register asan investment adviser with the Securities and ExchangeCommission (SEC).Regulatory and compliance considerationsRoadmap for fund launch considerationsSecondly, the fund should evaluate the impact of theAlternative Investment Fund Managers Directive and howthat might impact their distribution model in the EU.Key considerations Legal entity–– Determine and create appropriate legal entityand fund structures Registration–– Coordinate preparation for Form ADV filing–– Select solutions and develop Form PFsolution architecture–– Establish the compliance program under the Adviser’sAct and related policies and procedures to complywith Rule 206 (4) – 7 of the Adviser’s Act–– Designate a Chief Compliance Officer to administerthe firm’s advisory program–– Set up a compliance training program under theAdviser’s Act Governance–– Establish appropriate oversight and supervisory controls–– Develop appropriate framework and relatedgovernance requirements–– Designate reporting lines to the appropriategoverning bodies Books and records–– Establish a records management program andmaintenance requirements–– Assess new fund’s preparedness for an SEC inspection–– Set up a recordkeeping and documentation policy,such that records are easy to verify, explain, or clarifyand prepared in a timely and standard mannerHedge fund launch considerations Reaching new boundaries 7
Roadmap for fund launch considerations12345Target operating model considerationsOrganizational design considerationsTechnology architecture considerationsRegulatory and compliance considerationsRoadmap for fund launch considerationsA roadmap provides a plan for executing the fund launchand also facilitates the identification and mitigation ofpotential launch risks and challenges. The plan shouldprovide a timeline, call out milestones, and assignownership to activities. The plan gives the launch teama common understanding of the timing for requisites tothe launch, such as registration, development of funddocuments, and selection of key service providers. It alsoprovides a common understanding of activities that maytake place after the initial launch.Key considerations Activities and timeline should take into account theregulatory environment, target operating model,technology architecture, and organizational design Capabilities and constraints of all stakeholdersshould be incorporated in the plan, including outsideservice providers8 TSA considerations should be captured in the plan–– Where applicable, the plan should indicate how thefund will decouple key functions and systems fromthe parent company and the activities on whichdecoupling depends–– Management should consider negotiating an optionto renew in the TSA for mission critical functionswhere decoupling is complex Timeline should take into account known and expecteddeadlines mandated, as applicable, by the Volcker Rule Management should consider developing a roadmapalternatives and the timeline and risk impact of each–– The roadmap should reflect the balance thatmanagement wishes to achieve between time tomarket, cost of launch, and the degree of target statecompleteness on day one of the launch
Hedge fund launch timelineMonth 1Month 2Month 3Month 4Month 5Month 6Establish program structure and governance Identify key stakeholders and project team Establish internal communication processComplete and approve fund terms Define key external advisors Define legal entity structure Define fund strategy Complete fund term sheetSign off term sheetComplete fund legal documents Identify required fund legal documents Complete fund legal documentsPPMfinalizedDesign and select operating/technology environment Define target operating state Define and select service providers Design and select new system/technology requirements Define staffing support modelCompleted detailedoperating modelrequirementsComplete operating and trading agreements Identify required operating and trading agreements Complete operating and trading agreementsEstablish marketing program Develop marketing strategy Develop marketing materialsCompletedmarketingmaterialImplement operating/technology environment Implement fund administrator Implement prime broker Implement portfolio system support Implement “prop” trading interfaces Execute HR staffing modelLaunch fundHedge fund launch considerations Reaching new boundaries 9
How Deloitte can help*Deloitte has developed a project approach for hedge fund launch preparation. The approach captures current statecapabilities, future state requirements, and identifies regulatory, operational, technology, and human capital gaps that mayneed to be addressed for the launch. This approach may help reduce launch risk and helps management design the futurestate and develop a strategic launch plan.Confirm strategy andcurrent operating model Confirm the enterprise designstrategies and goals of the fund Understand existingorganizational, technology,and operational supportstructure and capabilities Review functional groups andtechnologies of the parentcompany that the fund maybe able to leverage after thespin off Identify issues that the fundmay encounter in trying toleverage parent companyfunctional groups andtechnologies for the needs ofthe fundFuture stateenterprise design Draft inventory of businessrequirements and determineregulatory and compliancerequirements for the fund Consider operating modelalternatives for functions,including insource vs. outsourceand functional vs. productcentric models Recommend target operatingmodel alternatives that supportsstrategies and goals, leveragesoperating strengths, andincorporates leading practices Provide advice andrecommendations on atechnology architecture andorganizational design that alignwith the operating modelGap analysis Analyze expected capabilities ofspinoff fund as well as functionsand systems for which the fundwill rely on the parent company Analyze operational functions,technology requirements, andorganizational needs for whichno or partial solution exists;identify options and developselection criteria Identify potential outsourceproviders/vendors that couldmeet requirements Capture the impact of achievingthe future state (people,process, regulation, andtechnology) and identify changemanagement considerations*For services provided to attest clients Deloitte would need to maintain its auditor independence obligations, including any audit committee approvals.10Develop strategiclaunch plan Recommend fund launch planalternatives with timeline andkey activities for each Assess tradeoffs betweenspeed/cost to market andcompleteness of targetstate at time of launchfor each alternative; alsoconsider complexity, risks anddependencies for each Assist as management selects apreferred launch plan, assignsactivity ownership, confirmtimeline, and builds out planexecution tool set, including riskmanagement, issue tracking,and change management tools
Our value propositionDeloitte brings the engagement experience, industry knowledge, and team of resources with the operations, regulatory,technology, and project management backgrounds to address the different challenges and opportunities that fund launchprojects present.Relevant experienceIndustry knowledgeTeam approachDeloitte has experiencesupporting hedge fund launchesand can assist in a number ofways.Deloitte brings to the tableknowledge of the industrylandscape and leading practices.Deloitte brings to fund launchesa team with the various andcomplimentary skills that theeffort demands.Example services: Operating model, technologyarchitecture, and organizationaldesign Regulatory and compliancerequirements preparation Service provider selection andimplementation Systems selection andimplementation management Compliance manual andpolicy and procedures manualdevelopment assistance Mock regulatory inspectionsExample subject matter areas: Current hedge fund regulatoryand operational challenges andfamiliarity with solution options Service provider landscape,including database of hedgefund administrators and theirstrengths and weaknesses Vendor landscape, includingdatabase of investmentaccounting, trading, riskmanagement, and analyticsproviders Leading practices for keyconcepts, such as data strategy,enterprise risk management,and governance model designHighlights: Former senior staff fromregulatory bodies, serviceproviders, and softwarevendors on staff Deep project managementexperience to ensure acollaborative approach acrossstakeholders Access to the Deloitte ToucheTohmatsu Limited memberfirm network of global tax,regulatory, accounting, andfinance professionals forspecific engagement issuesHedge fund launch considerations Reaching new boundaries 11
ContactsSam AuxierPrincipalDeloitte & Touche LLP 1 312 486 2793sauxier@deloitte.comKarl EhrsamPrincipalDeloitte & Touche LLP 1 212 436 3153kehrsam@deloitte.comCraig FriedmanSenior ManagerDeloitte & Touche LLP 1 212 436 5130crfriedman@deloitte.comBrendan WinklerSenior ManagerDeloitte & Touche LLP 1 312 486 9530bwinkler@deloitte.com12Alexa DiGiorgioDirectorDeloitte & Touche LLP 1 212 436 2064adigiorgio@deloitte.com
Copyright 2013 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu Limited
Hedge fund launch considerations Reaching new boundaries 7 Regulatory and compliance considerations The fund may fall under the Advisers Act of 1940 (Adviser’s Act), and should understand the reporting, governance, and recordkeeping responsibilities of a registered adviser. The
