Over the last few years or so, advising hedge funds startups about operations have emerged as an industry by itself. One of the most important themes that make starting a hedge fund an attractive and viable option is the lack of rules dictating the domain. However, even still, there is no shortage of individuals and companies to advise start-up managers, especially the ones who do not have much of an industry experience. Scott Tominaga, for instance, has been Chief Operating Officer of Partners Admin LLC since 2008, which is a company that offers cost effective options for increasing operational efficiency in terms of hedge funds.
Most startup fund managers today try their best to hone their skills. This is particularly true within medium and large sized organizations, where the fund managers do not have to deal with the day to day management and execution of investment decisions. After all, stock picking is a full time job in and by itself. Modern fund managers know the business of trade confirmations, cash management, settlement and reconciliation as the “back office” and “middle office” within an institution. Start-up hedge fund managers mostly maintain this distinction at their period, as at the end of the day, there really is just one office. In a world where only performance matters, returns achieved by the smartest investment decisions can be eroded due to inefficient operations, including the sloppy monitoring of actual security and currency exposures, as well as mismanagement of the cost base of the fund. To effectively succeed, fund managers need to gain a clear understanding of the underlying business model of the fund itself, while also delegating the execution of parts of the chosen business model. They need to effectively understand the requirement of maximizing its efficiency on the whole.
Once a manager gains a good understanding of the inner workings of the fund, it is important that they put a systematic and efficient operational workflow in place. An experienced COO like Scott Tominaga will be able to contribute significantly here. But ultimately the fund manager is the one who has to take care of the efficiency of the process from idea generation all the way through the stage of NAV reporting as all of it shall impact the profits. A fund manager may understand the cash flows of their fund work and can monitor them accurately, but in case the trades are being recorded and re-recorded several times before they view or the funds and positions are manually reconciled over several hours every day, then their returns might be affected. A fund manager who has mapped out an efficient workflow on the operational side will have more time to focus on making smart investment decisions. Owing to the hedge fund model and the freedom offered by it, they enjoy the ability to make decisions on the go, whenever required.
