Many hedge fund organizations are facing challenges with middle office operations. The combination of HedgeGuard’s Portfolio Management System (PMS) with Itiviti’s post-trade matching solution, NYFIX Matching enables small and medium-sized buy-side firms to be liberated from onerous middle office trade management tasks.

Taking the pressure off

Small and medium-sized buy-side firms often struggle with high operational and compliance costs, which can be out of proportion to their size. For example, “when you look at the trade workflow today in the asset management industry, first the asset manager has to trade with the broker,” says HedgeGuard CEO, Imad Warde. “Then the broker and asset managers have to communicate their trades to the middle offices, who try to reconcile the trades, then send them to the custodians, who try to settle them. Once this is done, they go to the administrator for valuation and so on. This workflow takes anywhere between a day to three days. Sometimes it takes a week to get into the accounting systems.”

The family of HedgeGuard solutions are designed to make it easier for small and medium-sized hedge funds to manage their workflow. The HedgeGuard Portfolio Management System, a cloud-based technology platform, delivers detailed trade and position management capabilities to these institutions.

“What we're trying to do by working with Itiviti’s NYFIX Matching, actually is to have a reconciliation settlement and push towards the administrator the same day. So, you trade, and we do the rest in the same day and it works. I think this is a major enhancement to the current status of operations and the fund management.”

Integrating NYFIX Matching

HedgeGuard is integrating NYFIX Matching first in its workflow for equities. It will then implement the solution in fixed income, and in futures and commodities. “The integration is going smoothly and the next step is testing with the client,” says Imad. “So, I can say that it is well organized, rigorous, and at the same time, people are having fun doing this integration.”

“Getting integration right is important”, says Jason Landauer, Itiviti’s Head of Network Sales. “Whether it be our work with the asset managers or their services arms, or Middle Office Service provider like Hedgeguard or with the broker community, we really own the project and make the implementation as seamless and as easy for our client base as possible.”

NYFIX Matching is helping many firms automate their approach to the middle office. Four ways in which firms are finding value in NYFIX Matching:

Cost effectiveness

The transition from a bespoke technology into a FIX-based technology creates much better scale and efficiencies. Some clients are saving close to $1 million a year by using NYFIX Matching.

Multi-asset support

NYFIX Matching currently supports equities, fixed income, swaps, options and derivatives. FX should start certifying in mid-2021.

Fully hosted and easy to use

Everything sits within the existing NYFIX infrastructure. Clients can access it and view all of their trade matching via the NYFIX portal. It’s lightweight and works well on a desktop computer.

Rapid response

Built to handle significant trading volumes, NYFIX Matching can turn around end-of-day trade matching processes within 15 or 20 minutes, compared with up to two hours in the past.

Adopting FIX integration

The market and the industry are starting to recognize the value of FIX 4.4. This is the version that needs to be supported for the allocation of the confirmations to flow via FIX. More and more firms adopt this because it just expands the timeliness and the flow of information in a much more efficient manner. With FIX 4.4 in place, there is an opportunity where a portfolio management system, combined with an automated connectivity, improves the process of those asset managers and gives them a certain edge. They will be able to have the same processes as bigger hedge funds at a much more effective cost.

HedgeGuard is adopting FIX 4.4 and opting for a FIX integration with NYFIX Matching. “From a savings efficiencies perspective, by outsourcing this type of information or piece of the management to HedgeGuard, it allows hedge funds to either reduce head count or reassign role responsibilities to people to do things that are alpha driving,” says Jason. Those hedge funds can let companies “like HedgeGuard via NYFIX Matching handle the post-trade piece of the workflow, which is ultimately not driving alpha for most of these funds. The outsourcing of the middle office and back office piece of their businesses has become more and more a common trend in firms like hedge start-ups who get in the way to be the services division of these firms.”

Connecting the community

The implementation of NYFIX Matching could lead to the automation of other processes too. “Today when we integrate the NYFIX Matching engine, we've solved the middle-back bridge and the way we see things forward is that we'd like to have also the front office piece,” says Imad. “That means sending orders to the market, through another bridge with Itiviti’s order routing network, NYFIX. So, we would have the full front-to-back flow. This is the next step. First, we are going to production with the back office piece, then we'll integrate the front office piece. And I think that would make the full operation flow smoothly.”

Itiviti’s NYFIX is a broker independent, vendor agnostic FIX community. It connects buy-side, sell-side and trading venues in the industry’s most stable and flexible order routing network, delivered as a managed service. NYFIX is continually expanding its global community of participants and partners, and today connects more than 1,600 buy-side and sell-side firms around the world.

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