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Convergence Awarded Best Alternative Data Provider at the 2018 HFM US Hedge Fund Technology Awards

Convergence Awarded Best Alternative Data Provider at the 2018 HFM US Hedge Fund Technology Awards

New York, NY – On February 13th, Convergence won Best Alternative Data Provider at the 2018 HFM US Hedge Fund Technology Awards held at the Yale Club in New York City. The HFM US Hedge Fund Technology Awards “recognize and reward IT and software providers serving the hedge fund sector that have demonstrated exceptional customer service and innovative product development over the past 12 months”. (via HFM)

John Phinney, Co-President of Convergence, states: “Convergence is honored to receive the 2018 HFM Award for Best Alternative Data Provider.  We work hard everyday to bring our clients original and value added insights into the Alternative Asset Management Industry.  We thank our clients for their continued support and loyalty.”

About Convergence

Convergence is a growth company that has created an entirely new platform comprising (1) data, (2) research and analytical products, and (3) surveillance / monitoring services all providing transparency into the infrastructure of the alternative asset management industry.

Core data sourced from regulatory filing and other public sources, enriched by Convergence to provide original insights into the business operations of the entire registered investment advisor universe.

Experienced senior leadership team of industry practitioners with proven ability to execute on continuous product development, sales execution, scaling technology, and metric-based financial planning and management.

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Annual 2017 Operational Due Diligence Survey Results

Contact George Evans at gevans@convergenceinc.com to set up a product demo and receive survey. Press release below.

Convergence Annual Institutional Investor ODD – Operational Due Diligence Survey – 2017 Results

FOF’s – Pension Plans – Endowments and Foundations – Have you invested in ODD from a Tools, Technology and Personnel Perspective? Have you created sufficient capacity and bandwidth to manage Operating Risk?

Convergence is pleased to present the annual results of our 2017 survey focused on Operational Due Diligence (ODD) practices and processes concerning investment allocations by institutional investors to alternative assets. Survey participants include a cross section of institutional investors with respect to type of investor, number of investment allocations to external managers and the amount of new annual allocations to external managers.

Survey findings suggest that a number of Institutional Investors rely upon periodic Manager or Consultant communication and loosely defined processes to monitor Operational Risk and Infrastructure changes regularly. Institutional Investors may have limited resources and tools available to proactively fulfill their Fiduciary responsibility in an environment of increasing regulatory scrutiny and operational Complexity.

Selected highlights of the study include:

Given continued regulatory focus and increasing manager operating complexity, investors should refresh their evaluations of the level of resources (staff and/or technology) dedicated to Operational Due Diligence, as well as their own current written policies and documentation requirements from managers. We note that current manager and new manager allocations have increased since our prior study, but dedicated resources (people and technology) have increased only marginally. Tool sets provided by Convergence lend themselves to small to medium-sized ODD teams challenged by capacity and bandwidth.

Investors should consider reviewing their level of focus and current processes for evaluating managers’ assessment and monitoring of service provider relationships, including manager practices of ongoing monitoring of their service providers, particularly for hedge fund manager allocations. Private equity managers will likely continue to increase their level of outsourced service providers, underscoring the need for this review. Service provider “best fit” is a key consideration.

With the considerable increase in new products and new avenues for product distribution by managers, investors should reevaluate those data points, metrics and sources of information for assessing manager operational complexity and risk. Consideration should be given to appropriate weighting of risk areas for “scoring” purposes, and scoring processes should be considered by those not presently doing such as part of their ODD process. Operating Model Complexity and Risk Profiling are paramount to active management of an Advisor.

Investors should consider reviewing and updating their policies, practices and processes for performing ongoing ODD monitoring and surveillance of hedge fund and private equity manager allocations. Consideration should be given to the level of proactive, data-driven processes in place to perform ongoing ODD.

Although 100% of respondents indicate their organization views ODD as a “value adding” activity that can improve returns and manage portfolio risk, we are concerned that this area is one in which investors may slowly continue to build resources, processes and technology. Investors should consider a complete review of dedicated resources for varied aspects of initial ODD and ODD monitoring and make spending decisions consistent with their assessment of risk across their portfolio, recognizing that manager OPERATING risk profiles are in constant change.

PARTNERING WITH CONVERGENCE

Convergence focuses on providing Fund of Funds, Pensions, Endowments and Foundations relevant Advisor data – INDEPENDENT of the Advisor.

Convergence enables its institutional investor clients to increase internal efficiencies, reduce third-party consulting costs and enhance ODD responsibilities through the use of customized technology tools which “push” material events communications to those responsible for ongoing ODD.

Institutional investors have a responsibility to their stakeholders to monitor material events in the private funds industry and those specific to their investment allocations. While the level of focus and resources allocated to ongoing ODD is increasing, current processes are generally (1) reactive in nature, (2) dependent upon requesting information or on periodic updates and (3) likely not all-encompassing, even with respect to specific fund allocations.

Convergence has identified 40 operating complexity factors which it captures and creates, all geared toward enabling investors to assess and measure the business risk profile of manager allocations, including the ability to compare and contrast with industry peers.

ABOUT CONVERGENCE

This 2017 survey was designed and compiled by Convergence, Inc. along with industry practitioners, including certain representatives of survey participants. Convergence, Inc. is a data and analytics firm providing subscription and research data on Registered Investment Advisor infrastructure, positioning ODD teams to evaluate Operating Model Risk.

Convergence has developed a data, analytics and surveillance platform that provides transparency and easily accessible information relating to the business operations and infrastructure of alternative asset managers. Convergence products include technology-based tools used to facilitate manager and industry research, analytics and surveillance across the universe of registered investment advisors, including assessment of their operating and business risk profile, comparisons to peers and competitors and analyses of their service providers. The company’s platform includes dynamic data and analytics on the entire universe of 16,000+

Registered Investment Advisors, 53,000+ private funds and the industry’s ecosystem of 6,000 service providers. The platform includes 2,000+ data points from regulatory filings and news sources and a significant amount of derived analytics and proprietary original content – most notably Advisor operating model COMPLEXITY PROFILING.

Institutional investors use the company’s products to research advisors and their business complexity and operations-related ecosystem prior to and throughout investment allocation. Convergence products benefit institutional investors focused on employing a dynamic, data-based, ongoing process of manager and advisor surveillance. These products, which are customizable based on an investor’s allocations and data specifications, include Market News, Material ADV filing surveillance, Operating Model Research, Service Provider Best Fit, COMPLEXITY profiling, Fund Expense Practices and Redlining of ADV Part 2 Brochures.

Contact George Evans at gevans@convergenceinc.com (215-704-7100) to set up a product demo and receive survey.

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Capital Flows into Alternative Asset Funds – September 2017

Attached is our inaugural quarterly research report on capital flows into alternative asset funds.  The alternative asset industry continues to grow!  Through the first 3 quarters of 2017, we saw capital flows up 32% when compared to 2016 and we are forecasting $1.4 trillion of new capital flowing into alternative asset funds and 6,700+ new issues for the full year 2017.

Capital Flows into Alternative Asset Funds September 2017
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Insight #16 – Complexity Continues to Drive Operating Risk

Earlier this month, Convergence saw another adviser on the receiving end of a significant fine levied by the SEC.  In this instance, Capital Dynamics incurred a $275 thousand fine for “improper allocation of certain expenses to a private equity fund client.”   Fund expenses have been an SEC hot topic for some time now and Convergence has published several research papers on the factors that drive operating risk at advisers.  In this case, subscribers to Convergence’s Complexity Profile™ Service would have seen the high levels of operating risk at Capital Dynamics.  Based on a 3-year review, it was consistently assigned a “High-Watch” Complexity Profile™ and there are several red flags among the 40 complexity factors that Convergence reviews to identify operating risk.  The attached research paper discusses why Convergence believes Capital Dynamics is a “High-Watch” manager based on the red flags identified by Convergence.

Convergence Insight _16 - Complexity Continues to Drive Operating Risk_FINAL-2
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FundFire Alts Feature: Hedge Funds Cut Costs by Trimming Ops Shadowing Efforts

Article published on August 9, 2017
By Lydia Tomkiw

 

Hedge funds are increasingly looking to shadow only core areas of their fund administrators, amid performance pressure and a hunt for ways to cut costs, industry watchers say.

While full shadowing – essentially duplicating an administrator’s functions to verify and secure fund data – remains in the market, more managers are eyeing a model of “oversight and governance,” which entails shadowing only key areas of their administrators.

“It’s a significant shift and it does reflect the evolution of the hedge fund industry and the challenges the industry is facing – and how those drivers are shifting how a hedge fund is run,” says Samer Ojjeh, a principal in the financial services organization at Ernst & Young, who co-authored a recent paper on the subject.

Approximately 90% of the managers Ojjeh works with have debated moving to an oversight and governance model, including about 40% that have taken steps such as gradually shifting away from shadowing reconciliation or trade settlement activity, he says. Part of the process involves managers doing a lot of homework around their service providers and understanding the processes and procedures when it comes to business continuity plans.

“We are seeing a significant focus on this because of the cost pressure and the fee pressure they are under. It’s not sustainable to pay for two sets of books or two sets of back offices,” he adds.

Under an oversight and governance model, managers can reduce some operating costs by outsourcing those shadowing functions to admin firms, including back-office processes such as NAV calculation, according to the paper.

The overall market has improved so far in 2017, with inflows picking up and hedge funds posting their strongest performance of the year in July, gaining 1.2%, according to Hedge Fund Research’s weighted composite index. Despite the performance turnaround halfway through 2017, investors have become increasingly averse to fund pass-through expenses, including research and travel, according to EY’s 2016 global hedge fund survey. But the highest level of respondents, at 34%, said it was acceptable for managers to pass through expenses related to outsourcing back-office shadow functions.

Managers increasingly want to spend more time focused on trading and research, which is driving them to outsource other aspects to third party providers, says David Young, president at Gemini Hedge Fund Services.

“It reduces their cost structure internally, which allows them to be much more competitive from a fee perspective,” he says. “Obviously as funds are under fee pressure… it does put on additional constraints in regards to your ability to properly staff. And by outsourcing they can get the efficiency of what an outsourced third party can provide.”

Some hedge fund managers are now even looking to hire a second fund administrator to check the work of their current admin, Young says, noting approximately 15% of Gemini’s hedge funds clients are using it for this service.

Part of the process of deciding on a correct fit when it comes to shadowing arrangements is asking the right questions, he adds. “If you’re spending money to have a shadow process, whether internal or external, do you have the right process in place? Are you assured that you’re going to come up with a true secondary check?”

While some managers are eyeing the switch, the process is more of an evolution than a revolution, moving at a slower pace, argues John Phinney, co-founder of Convergence, Inc., a firm that identifies, tracks, and reports changes across the alternatives industry on a daily basis.

Mangers face a tough decision when settling on which model is right for them, prompting a lot of talk, but not as much action, he says. Part of the problem for managers is finding the right cultural fit with their admin providers.

“The reality of the opportunity is really rooted in culture. The advisor has to be willing to give up certain [control] or they have to create a whole different level of transparency around what they are doing,” Phinney says. “So while it has interesting economic [implications]…. more people opt not to do it because they do not want to give up certain [control] they have.”

Hedge funds employing the oversight and governance model range in size from those above the $25 billion assets under management mark to start-up managers and across strategies, the EY paper found.

Hedge funds have increasingly been looking at different shadowing arrangements, says Sidney Wigfall, managing partner at SCA Compliance and Consulting. From a compliance standpoint, “delegation without abdication” is the principle that has been reinforced by the Securities and Exchange Commission, with managers needing to have oversight of key service providers, he says.

“For those firms that were doing it at a full 100% shadowing, it shouldn’t be too difficult to get to a place where they pull back and only need to do cross validation on key areas,” he says.

While questions may arise over business continuity and cybersecurity, cost pressures are likely to keep driving hedge fund managers to reevaluate their set-ups, he says. “I think you’ll see more and more firms at least revisiting their structure to see if there are cost savings they can capture.”