A

Project Report

On

“HEDGE FUND ACCOUNTING(POLICIES AND PROCEDURES)

&BACK OFFICE OPERATIONS”

Submitted in the fulfillment of Post Graduate Diploma in Business Management By:

GARIMA MALIKPGDBM IV Semester

Roll No-150

Under the guidance

Of

Prof. R.K.SinghalFaculty of Finance

New Delhi Institute of Management60-61, Tughlakabad institutional AreaOpp.Batra Hospital, New Delhi-110061

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CONTENTS

CERTIFICATE

ACKNOWLEDGEMENT

PREFACE

INTRODUCTION

COMPANY PROFILE

CHAPTERS Pg No

Chapter 1- All about hedge funds. 14

Chapter 2- Hedge fund accounting. 22

Chapter 3- Front office operations. 34

Chapter 4- Back office operations. 39

Chapter 5- Outsourcing of Back office 47

Operations to Patni Computers.

FINDINGS AND ANALYSYS

RECOMMENDATIONS

LIMITATIONS OF THE PROJECT

CONCLUSION

BIBILOGRAPHY

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CERTIFICATE

This is to certify that this Project Report on “Hedge Fund Accounting (Policies & Procedures)

& Back Office Operations” is the original work of Ms Garima Malik, a student of New Delhi

Institute of Management PGDBM 2005-07 Batch (Roll No-150).

Certified By:

(Prof. R.K.Singhal)

Finance Faculty.

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ACKNOWLEDGEMENT

I consider it to be a great pride and fortune that I got the privilege of completing my Final Project at Patni

Computers System, Noida. I would like to express my gratitude to our Process Manager Mr. Ishtiaq Gani

for finding me capable enough to work with such an esteemed organization. I would like to sincerely

thank my Team Manager Mr. Vinod Kumar Garg whose inspirational guidance, keen interest, valuable

suggestions, deep involvement as well as constructive criticism motivated me to complete the task with

great zeal.

My foremost gratitude is due to my revered and erudite teacher Prof. Mr. R.N. Singh (Director) and Prof.

R.K. Singhal (Finance faculty) of NEW DELHI INSTITUTE OF MANAGEMENT for their constant

support without which this project would not have been successfully completed.

GARIMA MALIK

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PREFACE

It is well evident that work experience is an indispensable part of every professional course. In the same

manner practical training in any organisation is a must for each and every individual who is undergoing a

management course. Without the practical exposure one cannot consider himself or herself as a qualified

capable manager. When an individual starts working he applies his theoretical knowledge into practice in

real situations of the corporate world. This experience is very valuable for a student & plays a leading

and an important role in career of a student.

Hence to fulfill this requirement I have joined Patni Computers, Noida.

Entering the organisation is like stepping into an all new world. At first everything seems strange and

unheard but at the same time when the time passes one understands the concepts and working of the

organisation and thereby develops professional relationships.

Initially it is felt as if classroom study was irrelevant and it is useless in any concern’s working but

gradually it is realized that all the basic concepts studies are linked in one or the other way to the actual

working. But how & what can be done with fundamentals depends upon the intellectual and applicability

of the individual. It is just a matter to modify the theory so as to apply it to a given practical solution.

I sincerely believe that there is no better place to learn this practical side of management than the

industry itself.

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INTRODUCTION

The objective of this project study was to find out each and every aspect of a hedge funds and accounting

for the same. This project will take you through the life cycle of a hedge fund. It explains the meaning

and how it is managed by expressing all the activities of front office as well as back office operations.

The study was conducted to find out how the trade takes place, what all research is done before taking

trade decisions and how it is done along with the parties involved, how data entry is done and by also

giving few information about the accounting platform used by the client. As an employee of Patni

computers, I intended to explain the role that Patni plays in Hedge fund accounting in back office

operations. The project gives details about the conversion work done from the old accounting platform to

the new platform. For doing so all the procedures followed have been explained from checking the

reports with the NAV file and other supporting files, then after checking the authenticity of the data the

portfolio and the Trial Balance part is settled separately by booking trades, pricing them, running the

Unrealised Gain/Loss report and finally doing the recon of client data and data from the new platform.

On the other hand Balance Sheet & P&L items are handled separately by making a GL Uploader and

posting each entry under a particular accounting code which is system generated. At the end the analysis

part contains the conversion work done in the year 2006 which shows the conversion work for each

individual month and the reasons for disparity in the same. It also shows the error rates and work done on

each individual function of the process and time taken for the same. Percentage work done between Patni

and the operations team is also indicated in the project.

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COMPANY PROFILE

The most successful companies in the world have two common characteristics: they focus on core

competencies, and flawlessly execute on a consistent basis, in every area of business. For all other

companies, these elusive qualities are a highly prized goal. To achieve these goals in an environment

with increasing costs and competition, many global organizations are turning to Business Process

Outsourcing (BPO) for streamlining their operations and increasing profitability.

Patni’s suite of Business Process Outsourcing services is a natural extension of its IT service offerings.

Patni’s Business Process Outsourcing services are built on a foundation of process and domain expertise,

and are enabled by innovative technologies. As in the company’s other practices, Patni’s Business

Process Outsourcing services are managed to meet high quality standards. Clients rely on them to

improve the bottom line and focus more effectively on their core business, while maintaining a high

quality of service.

Patni provides customized global sourcing solutions to a diverse group of clients who rely on them for

vertical-specific processes, as well as shared corporate services. In addition to a broad range of horizontal

services including Finance & Accounting, IT Helpdesks and Technical Support, it also provides a

comprehensive suite of Business Process Outsourcing services for the Insurance and Financial Services

vertical markets. For 401(K) Plan administrators within the Insurance space, it also offers off shoring

services of the entire Benefits Administration Lifecycle.

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DIFFERENT FUNCIONAL DEVISIONS OF PATNI BPO

Patni offers clarity and expedience in delivering BPO solutions. It gives clients a clear roadmap that is

designed to enhance productivity and reduce costs through process assessment, process standardization

and process re-engineering. To ensure the highest levels of information quality and integrity, it has

adhered to the BS7799 standard to establish a robust Information Security Management System (ISMS)

that integrates process, people and technology to assure the confidentiality, integrity and availability of

information. A global infrastructure helps Patni to implement BPO services that utilize the right

combination of resources from offshore, onshore or onsite.

In the event of a business disaster, Patni has you covered. We have in place a comprehensive model for

disaster recovery and business continuity in the event of any disruption.

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Financial Services

In a highly competitive Financial Services environment, regulatory requirements and accounting changes

share “top priority” status with customer satisfaction and risk management. Through its proven expertise

in offering financial services outsourcing solutions, it has helped some of the largest financial institutions

in the world achieve operational efficiencies while allowing them to focus on core business activities

such as increasing assets under management, creating wealth, ensuring regulatory compliance and

expanding customer relationships.

Augmenting domain knowledge with flexible and responsive service, we add value to our financial

institution clients’ operations, boosting efficiencies while driving down the cost of doing business. Our

expertise in financial services outsourcing solutions covers major industry segments including Securities

and Investments; Banking, Credit and Payments; and Insurance.

End-to-End Financial Services solutions

Patni provides organizations a full spectrum of Financial Services solutions. Some key IT services

include:

Portfolio Accounting and Reporting

Legacy Maintenance and Re-engineering

Performance Analytics and Management

Business Systems Management

IT Consulting

Business Process Outsourcing

Application Development / System Integration

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Infrastructure Management Services

Markets in Financial Instruments Directive (MiFID)

Patni Computer Systems Ltd. (Patni) (BSE: PATNI COMPUT, NSE: PATNI, NYSE: PTI) is one of the

leading global providers of Information Technology services and business solutions. Over 12,000

professionals service clients across diverse industries, from 23 sales offices across America, Europe and

Asia-Pacific, and multiple offshore development centers across 8 cities in India. Patni has serviced more

than 200 FORTUNE 1000 companies, for over two decades.

Patni’s vision is to achieve global IT services leadership in providing value-added high quality IT

solutions to the clients in selected horizontal and vertical segments, by combining technology skills,

domain expertise, process focus and a commitment to long-term client relationships.

Patni has vast experience in system and application development projects, across all major software

platforms and environments. We have major software competency centers throughout India, with our

professionals employed on onsite as well as offshore projects.

We spend a significant part of our revenue on training, ensuring that our employees are constantly

updated on new technologies and skills.

Committed to quality, Patni adds value to client businesses through well-established and structured

methodologies, tools and techniques backed by Six Sigma processes. Patni is ISO 9001:2000 certified

and is also assessed at SEI-CMMI Level 5 and P-CMM Level 3.

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The significance of Corporate Logo

The Spiral of Success

The Patni logo is a circle formed by individual spiraling shapes. The circle, a symbol of completeness,

represents the holistic solutions that Patni creates. Just as the individual spirals come together to form a

circle, so the diverse elements of Patni's global resources work together to deliver a complete solution to

clients. The individual spirals are moving together in synchronicity - moving forward to achieve a

common goal. The entire image is skewed forward to communicate a multi-dimensional, dynamic

perspective. The name Patni is presented in lowercase letters to appear more approachable, contemporary

and innovative. Using the full name Patni gives the company a stronger sense of identity while moving

away from generic initials that have become indistinguishable from the rest of the Industry. The red color

in the icon represents the progressive, energetic part of the company while the grey of the Patni word

represents its dependability and trustworthiness.

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About BISYS

The BISYS Group, Inc. (NYSE: BSG) provides global solutions that enable investment firms, insurance

companies and agents to more efficiently serve their customers, grow their businesses, and respond to

evolving regulatory requirements. BISYS’ Investment Services group, recognized globally for its service

excellence, provides administration and distribution services for mutual funds, hedge funds, private

equity funds, retirement plans and other investment products. Through its Insurance Services group,

BISYS is the nation’s largest independent wholesale distributor of life insurance and a leading

independent wholesale distributor of commercial property/casualty insurance, long-term care, disability,

and annuity products.

BISYS was established over sixteen years ago to serve the information processing needs of a modest

clientele of community banks. With service excellence always at the fore, BISYS has grown to become a

global provider of market-leading investment and insurance solutions with over 1,000 institutional clients

and thousands of sales representatives throughout the financial services industry.

Financial services organizations, insurance companies and agents, rely upon BISYS for their mission-

critical business processes in order to focus exclusively on their core competencies and performance

goals, enhance their level of competitiveness in their respective fields and eliminate costly internal

infrastructures.

BISYS is uniquely positioned to support the financial services industry’s increasing consolidation,

product expansion, technology utilization, and trend toward outsourcing as its clients respond to growing

consumer demands, changing market dynamics, and new forms of competition. BISYS supports its

clients with:

Product innovations and enhancements

State-of-the-art technology

Expertise in the financial and insurance services industry

Outstanding client services and support

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BISYS Investment Services:

Fund Services

Regulatory Services

Hedge Fund Services

Private Equity Services

Retirement Services

Financial Research Corp. (FRC), a BISYS subsidiary

BISYS Insurance Services

Life Insurance Services

Commercial Insurance Services

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Chapter 1

ALL ABOUT HEDGE FUNDS

Origin of Hedge Fund

Hedge Funds are a relatively new phenomenon. Alfred Winslow Jones set up the first true hedge

fund in 1949.

His strategy was to concentrate on investing in what he perceived to be incorrectly valued U.S. stock

as well as borrowing money to inject his fund with additional capital (leveraging)

By the end of the 1960s, there were about 140 hedge funds in existence. Many hedge funds ran into

difficulty during the recession hit 1970s when their strategies proved poorly formulated.

Jones introduced two distinctive characteristics of the modern hedge fund: the performance based fee

and investing his own money in the fund.

This gave investors two clear assurances: Jones would only profit when the fund made a profit and

that he would only take risks with investor’s money that he himself was prepared to take with his

own money.

As of March 2005, there are in excess of 7,000 hedge funds managing an estimated $1.2 trillion in

capital.

Definition & Key Characteristics of a Hedge Fund

A Hedge fund is an actively managed investment fund that seeks attractive absolute return. In pursuit of

their absolute return objective, hedge funds use a wide variety of investment strategies & tools. They are

designed for small number of large investors & the manager of the fund receives a percentage of the

profits earned by the fund.

Their investment objectives & strategies are very different from other traditional funds. They represent a

distinctive investment style .They emphasize absolute rather relative returns and they use a very wide

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range of investment techniques like leverage, short selling and other hedging strategies-in the attempt to

achieve their objectives. Hedge fund management firms tend to be small firms dominated by one or two

key investment people. The client does not merely hire the manager instead the client & manager

becomes partners, co-investing in situations that the manager finds attractive. The hedge fund could take

the form of a limited partnership, an offshore fund, a commodity pool, or a specialized form of separate

account.

To introduce the basic themes that separate the world of hedge funds from the world of traditional

investments management the project would focus on hedge funds that are structured as limited

partnerships & traditional money management strategies that are delivered in the form of a mutual fund.

INVESTMENT OBJECTIVE

Most equity mutual funds & most hedge funds are designed to deliver long term growth of capital. The

fundamental objective is to deliver a return that will exceed the inflation rate over the investment period,

so that the real purchasing power of the investment will increase over time.

Equity mutual funds do this by investing in stock markets, which has an upward bias over long time

periods. The investment management business is a very competitive business in which the objective is to

beat some target rate of return. For an equity mutual fund there are two targets: first, the rate of return

achieved by competing money managers and second, the return of some relevant market index i.e. the

passive bench mark represents the performance of the basic market that the fund is investing in, what this

means is that the money manager is trying to deliver good relative performance: performance that is good

relative to a passive benchmark that may in fact experience negative returns. But you can’t spend relative

performance: if the index is down 10 % and the investor is down 8 %, he has still lost money.

The hedge fund business is that the manager cares only about absolute returns. The purpose of hedge

fund is to earn a positive return which is totally different from beating a benchmark. If a hedge fund

manager is down 12% he can’t point to some benchmark and say, “Well the index was down 15% so I

beat the index by 3%”. That excuse is removed from the start.

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Investment strategies:

The investment strategies adopted by a hedge fund manager includes the leveraging, short selling,

diversification and so on. Leveraging is buying stocks on margin – i.e. using borrowed money to buy

more stock then you can pay for with your own money. Short selling is a strategy designed to take

advantage of falling prices; you borrow stock, sell it, then buy it back at a lower price and return the

stock you borrowed. Diversification is not putting all you eggs in one basket. Mutual Funds must follow

SEC rules of diversification and they must observe the limitations on leverage and short selling. On the

other had a hedge fund manager can do almost any thing that he wants to do. He can also use other

hedging strategies or take very concentrated positions in single stocks, industries or trading ideas.

Just a mutual fund manager set out their investment motives and strategies in a prospectus, hedge fund

managers set out their objective and their strategies in an offering memorandum. The mission of an

offering memorandum is to make money by taking long or short positions of stocks, bonds and relative

instruments. The challenge for a hedge fund investor is to make sure that he invests with managers who

know how to use the freedom that is available to them. And ultimately even the best managers may

misuse the freedom that is available to them. So diversification across multiple managers is an essential

form of protection.

Sources of Return and Risk:

For an equity mutual fund, return is largely determined by three factors: the performance of the market

that the manager invests in; the performance of the mangers strategy (sometimes referred to as

investment style); and the level of skill that the manager brings to bear. The most important single factor

is the performance of the market. When stocks, in general, are down most equity managers have a tough

time making money. But investments outcomes may still vary according to the various styles and

strategies used by different managers.

For a hedge fund manager, the market drops out as a source of return, leaving just two factors; strategy

and skills. The market drops out largely because the hedge fund manager has the ability to take either

long position or short positions. Long positions are that positions that make money when the prices of the

securities go up, while short positions are positions that make money when the price goes down. Short

selling gives the manager the ability – or at least the opportunity to make money in down markets. And

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this means, off course, that the hedge fund manager also has the ability or the opportunity to loose money

in up markets. So even if he makes money in up markets, the reason that he make money was not that the

market went up rather de decided to be invested in a portfolio of long positions, poised to make money

from a rising markets. Equity mutual fund managers don’t decide to be long. Being long is their business.

CULTURAL STYLE

There are some very large hedge funds and some very small mutual funds, but in general hedge funds are

smaller than mutual funds. The size difference emerges in two ways: hedge funds portfolio tends to be

smaller than mutual fund portfolio and hedge fund firms tend to be smaller than mutual fund firms.

However, the basic economies of the hedge fund business are such that small funds can still be extremely

profitable for the small number of people involved in running the fund.

Because hedge funds are smaller than mutual funds, they can trade more nimbly than their large

counterparts, and they can take positions in small situations that would be off limits to very large funds.

This does not mean that all hedge funds are hyperactive traders, there are hedge funds specializing in

classic long term, low turnover investing. But most hedge fund are fairly active traders, making all funds

are like aircraft carriers, hard to maneuver in tight spaces. Indeed, until 1998 the Securities and Exchange

Commission placed a definite limitation on the ability of a mutual fund to seek short term trading profit.

Hedge fund management firms also tend to be smaller than mutual fund management firms, with an

organizational structure that is very flat and designed to enable the firm to respond quickly to new

information. Most hedge funds are organized around one or two key investments professionals who are

the “stars” of the investment show.

BUSIESS RELATIONSHIP

When you invest in a mutual fund, you are hiring somebody to manage your money. When you invest in

a hedge fund, you enter into a partnership with the manager of the fund; you and the manager are co-

investors. The mutual fund manager may have no personal assets at all invested in the fund that he is

running. The investors in the partnership are the “limited partners”. The limited partners are called so

because their liability is limited. They can loose their entire investment, but they cannot loose anything

more than that. Their liability is limited to the extent of their share of investment. The “general” partner

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in theory bears unlimited liability. Because of this reason most of the hedge fund managers form

cooperate entities to serve as the general partner of their hedge fund partnerships.

In most successful hedge funds, the general partner is a wealthy individual whose investment in the fund

is a significant portion of the fund. In many cases the general partner of the fund single largest investor in

the fund. When management owns real equity, management is exposed both to the rewards of success

and to the penalties of failure. Even when the hedge fund manager has a substantial share of investment

in his own fund, it still cannot be guaranteed that the fund will do well or will avoid unnecessary risk.

There are hedge fund managers whose risk tolerance is greater than that of their client. These managers

are willing to take risks with their own capital that the limited partners are not ready to take. The hedge

fund manager’s substantial personal investment in the fund is not an infallible risk control mechanism.

LIQUIDITY AND MARKETING

The mutual fund manager makes a deal with the general public and the regulatory body. He wants to sell

his fund to the broadest possible audience. In exchange of this freedom, the mutual fund manager is

required to offer daily liquidity and is required to operate within the regulations and guidelines of the

regulatory body on investment strategies and activity. In short he wants broadest possible freedom in

marketing and must therefore accept substantial limitation in investing. Mutual fund offers the ultimate in

liquidity.

The hedge fund manager on the other hand makes a deal that is exactly the opposite to that of a mutual

fund deal. The hedge fund manager wants maximum freedom in investing the assets of the fund, in

exchange for which he accepts very substantial limitations on marketing and liquidity. As for liquidity

some hedge funds allow money to come in and go out only annually. Indeed, some very successful funds

require that capital be committed for two or three years or more. Other funds are geared to quarterly or

monthly cycle. Daily liquidity does not exist in hedge fund universe. As for marketing, the basic

objective of a hedge fund manager is to attract a small number of large investors rather than large number

of small investors. This means that the hedge fund is an “exclusive” investment vehicle that has some

special cachet. On top of that the hedge fund manager gains the freedom to use leverage, to sell short, to

hedge with the variety of derivative instruments( options, futures & so on), to hold concentrated

positions, to hold illiquid i8nvestments and so forth.

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PERFORMANCE FEES

In most mutual funds, the money manager earns a fees based entirely on the size of the assets under

management. In an equity fund, for example, the fee might be between 0.5 and 1 percent of the assets in

the funds. The money management business is a clear example of operating leverage.

When assets grow, the revenue grows faster than the expenses, so profit growth can be very handsome

indeed. But this also means that the mutual fund business rewards size more directly than it rewards

performance. A fund that performs well will attract additional assets, but there is no financial link

between the fund performance and the manager’s compensation. This means that the mutual fund

business is sometimes more focused on gathering assets than on managing assets.

In the hedge fund business there is a direct connection between performance and the manager’s

compensation. The hedge fund manager earns an asset based fees, which is typically 1% of the asset

under management but which can sometimes be higher or lower but he usually also earns a performance

based fee, a percentage of profits earned by the partnership. This fee is usually 20% of the profits, but it

can be higher or lower.

The question naturally arises whether the performance fees creates an incentive to take under risk. After

all the performance fees is like management stock options. In each case the manager can reap huge

rewards without taking on the risk of real loss. The manager can earn millions of dollars if the returns are

strong.

Hurdles

Funds may also specify a 'hurdle', which signifies that the fund will not charge a performance fee until its

annualized performance exceeds a benchmark rate, such as USD 90-day T-bills or a fixed percentage.

Rules as to what period should be considered for the hurdle vary from fund to fund, but it most

commonly covers the current fiscal year.

Sometimes the performance fees are levied only after a performance "Hurdle" has been met. A common

practice is to use a hurdle rate linked to short term interest rates, for example 3 month LIBOR in the fund

currency. This links performance fees to the ability of the manager to do better than the investor would

have done if he had put the money in a bank account.

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Though logically appealing, this practice has diminished as demand for hedge funds has outstripped

supply and hurdles are now rare

High water marks

A "High water mark" is usually used.] This means that the manager does not receive incentive fees unless

the value of the fund exceeds the highest value it has previously achieved. For example, if a fund was

launched at a NAV of 100 and rose to 130 in its first year, a performance fee would be payable on the

30% return. If the next year it dropped to 120, no fee is payable. If in the third year the NAV rises to 143,

a performance fee will be payable only on the 10% return from 130 to 143 (which is 10%) rather than on

the full return from 120 to 143.

This measure is intended to link the manager's interests more closely to those of investors and to reduce

the incentive for managers to seek volatile trades. If a high water mark is not used, a fund that ends

alternate years at 100 and 110 would generate performance fee every other year, enriching the manager

but not the investors. However, this mechanism does not provide complete protection to investors as a

manager that has lost money may simply decide to close the fund and start again with a clean slate --

provided, of course, he can persuade investors to trust him with their money.

Problems with performance fees

Performance fees have been criticized by many for giving managers an incentive to take risk, possibly

excessive risk, as opposed high long-term returns. A fund that may gain $100M in one year and lose

$100M in the next year may pay its managers a performance fee of $20M or more for the profitable year,

although overall the nominal return is zero and the real return after fees is negative.

TAXATION

Mutual funds and hedge funds are both “pass through entities” with respect to taxation. The fund

themselves do not pay taxes, but investors in the fund pay taxes on their share of interest, dividend, and

realized gains. The investors then have a choice: they can keep the distribution in the fund. In either case

the mutual fund investor owes taxes on the distribution.

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A limited partnership is, by its very nature, a pass through entity that owes no taxes on the taxable

income that is produced. This is true even if the hedge fund does not distribute any of its taxable income.

And, generally speaking, hedge funds do not make regular distributions to their investors. Interest

income, dividend income, and realized gains are retained within the fund. But the hedge fund investor

owes taxes on his share of taxable income even if that amount is not literally distributed. If he wants

access to his invested capital, he must redeem some, or all of his ownership interest in the fund. A hedge

fund is a limited partnership but it is designed to produce an economic return, not a tax benefit. Indeed

hedge funds have to struggle against various built-in tax disadvantages. Hedge funds generally trade

more actively than mutual funds. This is part of the nimbler-is-better-approach. Most hedge funds do not

strive for high tax efficiency because they think that the skill of the manager will produce a pre-tax return

high enough that the after-tax return will still be attractive and also tax accounting for hedge fund

investments can be cumbersome.

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Chapter 2

HEDGE FUND ACCOUNTING

Before we start analyzing the procedures and methods followed for hedge fund accounting it is very

important to first have clarity on the parties involved and the flow of work process.

Parties to a Hedge Fund

Fund Manager

The fund manager or the investment manager is the person or organization that is responsible for the

investment decisions and day-to-day running of the hedge fund.

A fund manger is also responsible for setting up the hedge fund in the first place.

This is a relatively straightforward process provided that the potential fund manager has enough

capital to cover the administrative, legal and registration costs associated with the hedge fund set up.

In big companies

Memorandum

As part of this set up process the fund manager must also prepare a Memorandum document for the

hedge fund.

This document is extremely important and is drawn up with the aid of a legal advisor and reviewed

by an accountant and auditor.

A Memorandum includes the following information:

a) The hedge fund name

b) The name(s) and contact details of the fund manager(s) together with a summary of their

educational background and career to date.

c) An overview of the fund stating its investment objectives and strategies.

d) General risks associated with investing in hedge funds

e) Specific risks associated with investing in this particular hedge fund.

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f) An outline of the securities that the fund will invest in.

g) The fee structure of the hedge fund.

h) Instructions on how to invest in the hedge fund.

i) Any restrictions on what the hedge fund can invest in.

Investor

As mentioned earlier, only certain accredited investors and qualified clients may invest in hedge

funds.

Typically a potential investor will first ask for the prospectus of the hedge fund so that he/she can

assess who the fund manager is, the objectives of the fund, its strategies etc,

If the investor is comfortable with the content of the prospectus they will invest their capital.

Once the fund manager has enough capital he/she can begin trading and begin to implement the

investment strategy. To do so, the hedge fund manager must also establish relationships with several industry service providers

from the outset of the fund. We will discuss two of these providers below.

1) Prime Broker

A prime broker is an individual or a firm that charges commission for executing trading instructions

submitted by another individual or firm.

A fund manager will therefore use a prime broker to execute his/her trade instructions.

The prime broker also facilitates “short selling” and can loan additional capital for leveraging.

We will discuss “short selling” and “leveraging” in a later section.

2) Fund Administration Company

A fund administration company charges the hedge fund for providing several duties of which we will

discuss in more detail in later sections.

There are several fund administration companies one of which is XYZ.

Within XYZ there are a number of departments each of which carry out specific administration roles

on behalf of the hedge fund.

a) Investor Services (I.S)

b) Custody

c) Portfolio Valuations (PORTFOLIO VALUATIONS)

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d) Client Relationship Management (CRM)

e) Corporate Secretarial

f) Market Data

g) Statutory Reporting

Life Cycle of an investment in a Hedge Fund

This segment of the module will bring us through exactly what happens when an investment in made

into a hedge fund. In doing so we will introduce you to the roles that the various parties to a hedge

fund play.

Consider the following scenario:

A fund manager has set up a hedge fund and has hired XYZ to act as its fund administrator.

An investor is interested in investing into this hedge fund from the first day it is launched. (The

“Launch Date”)

We will assume the investor is qualified or accredited and so can invest in hedge funds.

The first step a potential investor must make is to examine the prospectus of the hedge fund in

question.

If satisfied with the content of the prospectus, the investor contacts the Investor Services (I.S)

Department expressing a wish to invest or “subscribe” into the fund along with the amount of the

subscription.

The I.S Dept must conduct an Anti Money Laundering (AML) check on the investor.

If this check is satisfactory, I.S takes the subscription proceeds and issues the investor with a

“Contract Note”.

A contract note states all the relevant information pertaining to the subscription (e.g. the name of the

fund the investor has subscribed into, the monetary amount of the subscription etc)

I.S also advises the fund manager of this subscription and also advises Portfolio Valuations of

investor activity.

A hedge fund typically has two accounts – one held with XYZ and one held with the prime broker.

I.S lodge the subscription monies into the account held with XYZ.

These monies are then wired by Custody to the prime broker account.

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The fund manager uses this subscription proceeds to begin trading in securities (equities, bonds,

futures etc) using the prime broker to execute his /her trades.

These trade instructions are sent to Custody for upload onto the XYZ hedge fund valuations system

The prime broker provides cash statements for its account with the hedge fund and also provides a

holdings statement showing what holdings the hedge fund has.

PORTFOLIO VALUATIONS reconcile these prime broker cash & holdings reports to the equivalent

cash & holdings reports run from Geneva.(valuations system)

Obviously both sets of reports should match at any given time although this is not always the case.

PORTFOLIO VALUATIONS must also price the securities the hedge fund holds at the end of an

agreed period of time (set out in the prospectus) to see how well these securities have performed.

This period of time is referred to as the “Valuation Period” and the end date of this period is the

“Valuation Date” of the fund.

Hedge funds can be done on a monthly, weekly or daily valuation basis.

For example, if a hedge fund was on a monthly valuation basis then at the last business day of each

month PORTFOLIO VALUATIONS would price each of the securities the hedge fund holds.

These prices must be obtained from at least two independent sources. Examples of independent

sources are Bloomberg and Reuters.

Once PORTFOLIO VALUATIONS have successfully reconciled the prime broker cash & holdings

reports to the corresponding reports on Geneva and have priced each security, the “Net Asset Value”

(NAV) and “Net Asset Value per Share” of the hedge fund can be calculated for that Valuation Date.

We will explain what the NAV of a hedge fund is and examine NAV calculation in more detail later

in the module.

This NAV figure and NAV per share are sent by PORTFOLIO VALUATIONS to the fund manager

for sign off.

Once signed off, PORTFOLIO VALUATIONS send this NAV information to I.S who, in turn,

supply the NAV per share to the investor along with the number of shares he/she owns as at that

Valuation Date.

At the beginning of the next valuation period, if an investor wants to subscribe into the hedge fund

he/she must do so at the NAV/share price of the previous valuation period.

This subscription is made on the first business day of next valuation period, which is known as the

“Dealing Date”. (i.e. Valuation Date of the previous Valuation period plus one business day)

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What do Hedge Funds invest in?

A hedge fund can literally invest in anything as long as that investment is in adherence with the

prospectus guidelines.

Some of the more common investments a hedge fund can invest in are:

Equities

Equity is defined as the ownership interest of common and preferred shareholders in a company or

corporation.

An ordinary share/stock represents equity interest in a company. The owner of the share effectively

has part ownership of the company and is entitled to participate in the control of the company (i.e.

voting rights) and in its profits (i.e. dividends) in proportion to their shareholding.

A preference share/stock rarely carries voting rights and the right to participate in the profits of the

company is limited to an amount (rate) fixed at the time of issue. The payment of that dividend

however, ranks ahead of the payment of an ordinary dividend and the preference shareholder has

similar priority when it comes to receiving back capital in a wind up situation.

Bonds

Governments, companies and many other types of institutions issue bonds for sell with the sole

purpose of raising capital for a project.

The issuer promises to repay the purchaser of the bond the original amount paid (principal) plus

interest on a specified date (maturity).

Some bonds do not pay interest, but all bonds require a repayment of principal. When anyone buys a

bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of

ownership rights to the issuer, unlike in the case of equities. On the other hand, a bondholder has a

greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for

all creditors).

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Spot and Forward Foreign Exchange Contracts

A spot FX contract allows you to buy or sell foreign currency at today's exchange rate, with final

settlement occurring, in most cases, two business days later.

A forward FX contract is an agreement to trade one currency for another at a specified future date

and at a specified exchange rate. For example,

Sell USD $10,000,000. Buy €8,500,000

Agreed FX Rate = 1.1764706. Agreed Settlement Date = 31/12/2006.

A prime broker can facilitate both types of FX contracts.

Derivatives

This is a generic term often used to categorize a wide variety of financial instruments whose value is

“derived from” the value of an underlying asset, reference rate or index.

Examples of derivatives are:

Futures - A standardized, transferable, exchange-traded contract that requires delivery of an equity,

commodity, bond, currency, or stock index, at a specified price, on a specified future date.

Options - The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific

amount of a given equity, commodity, bond, currency, or stock index at a specified price (the strike

price) during a specified period of time.

Swaps - A contractual agreement between parties agreeing to the exchange of some good or service,

basically they are an exchange of payments.

In the financial world, swaps are often used as a means of hedging or reducing the risk of adverse price

or rate changes, also because they require no initial outlay of capital, they can be a source of leverage.

Warrants - A type of security that entitles the holder to buy a proportionate amount of common stock or

preferred stock at a specified price for a period of years.

Warrants are usually issued together with a loan, a bond or preferred stock --and act as sweeteners, to

enhance the marketability of the accompanying securities.

Other Funds

A hedge fund can also invest in other hedge funds. Such a fund is called a Fund of Funds (FoFs).

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NAV Calculation

The Net Asset Value (NAV) of a hedge fund is equal to the total assets of a hedge fund less its total

liabilities.

The NAV/share of a hedge fund = (Total Assets – Total Current Liabilities of the hedge fund) /

Current shares on issue

Example

If the total assets of a hedge fund are determined by PORTFOLIO VALUATIONS as $10,000,000

and the total liabilities were $1,000,000 then the NAV = $10,000,000 – $1,000,000 = $9,000,000.

If the number of shares currently issued by the fund = 10,000 then the

NAV/share = $9,000,000/ 10,000 = $900/share.

As we mentioned earlier, it is the task of PORTFOLIO VALUATIONS to calculate the NAV and the

NAV/share.

Assets

Holdings – Current market value of long securities held. (determined by pricing the securities from

independent sources)

Cash – positive (or long) cash balances held in XYZ a/c and prime broker a/c.

Interest – any interest earned on cash balances held in XYZ a/c and prime broker a/c and any interest

from bond securities.

Dividends - dividends due from long positions held.

A dividend is the distribution of all or a portion of a company’s profits during a specific period of

time.

As a shareholder in a company, you are in effect an owner of that company.

Therefore, you are entitled to receive a portion of the company’s profits relative to the number of

shares you own.

So, therefore, if a hedge fund owns shares in a company it is entitled to receive a dividend on those

shares.

Prepaid Expenses – expenses that have been paid in advance before they have been actually invoiced

against the fund.

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Liabilities

Holdings – Current market value of short securities held. (determined by pricing the pricing the

securities from independent sources)

Cash - negative (or short) short cash balances held in XYZ a/c and prime broker a/c.

Interest – any interest owed on short cash balances held in XYZ a/c and prime broker a/c.

Dividends - dividends to be paid on short positions held.

Fixed Fees – Examples of such fees are audit fee, accounting fee listing fee and registration fee.

They are “fixed” because we know exactly what the fee will be over a given period of time.

For example, when a fund is set up the fund manager will know that to have the hedge fund audited

on a yearly basis will cost, say, $12,000.

These fees, their amount and how they are calculated are clearly set out in the fund’s prospectus.

Management Fee - Hedge fund managers earn a management fee calculated as a specified percentage

of the net assets of the hedge fund.

Gross Net Assets

Once the total assets and the above liabilities have been determined PORTFOLIO VALUATIONS

can now calculate the Gross Net Assets

The GNA = Total Assets – Total Current Liabilities (excluding performance fee)

Net Asset Value (NAV)

Once the GAV has been determined a performance fee can then be calculated.

The NAV = Total Assets – Total Liabilities (including performance fee) or, to put it more simply, the

NAV = GAV – performance fee.

The performance fee is based on the fund’s performance and is based on the level of growth in the

fund’s NAV per share. Typically, fund managers can receive a performance fee of 10-30% of funds

gross profits per annum.

Performance fee calculation is a complex area.

Similarly to management fees, the basis for the calculation of performance fees is set out in the

fund’s prospectus.

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Impact of a wrong NAV/share calculation

Once the NAV/share is calculated for a particular valuation period, this figure is supplied to Investor

Services.

Investor Services, in turn, send this information to the various investors in the fund so they can see

the performance of their investment.

The newly calculated NAV/share price now becomes the price that an investor must pay if they wish

to subscribe into the fund at the next dealing date.

Consider if an investor wishes to buy 100,000 shares of a hedge fund at a NAV/share of $110.00.

The total cost of this subscription = $11,000,000. (100,000 * 110)

However consider if the NAV/share was wrongly calculated and that the correct NAV/share was

actually $109.90/share.

The true cost for this investor should have been $10,990,000.

So, in effect, the investor has been forced to pay $10,000 more than he should have.

In this situation the investor must be compensated by XYZ.

Alternatively, consider if the correct NAV/share was actually 110.90/share.

The true cost for this investor should have been $11,090,000. (110.90 * 100,000)

So, in effect, the hedge fund has lost out on $90,000 that it should have received.

In this situation the hedge fund must be compensated by XYZ.

Either way, a miscalculation of a NAV/share can be a very costly mistake.

Portfolio Valuations (PV)

The primary role of PORTFOLIO VALUATIONS is to calculate of the NAV. This includes the

following tasks:

Ensuring that holdings and cash are correctly accounted for, by performing cash and holdings

reconciliations to the Prime Broker.

Confirming all price movements which breach previously set tolerances to an external source such as

Reuters or Bloomberg.

Checking that all Corporate Actions, including dividends, have been processed correctly by

confirming to both the Prime Broker and an external source, such as Bloomberg.

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Processing of all fees (accruals and payments) onto the relevant accounting system, whether fixed or

percentage based.

Booking all capital transactions (subscriptions, redemptions, subs/reds in Advance, sales loads) to the

relevant accounting system based on the reports received from Investor Services.

Confirm all interest has been accrued for correctly and process payments where necessary.

Book all currency contracts (spots and forwards) based on information received on the trade file from

the Prime Broker.

Perform reconciliations to the Prime Broker to ensure that the payable and receivables in regards to

trades are correct.

Send completed reports to the fund manager for approval.

Once approved, NAV is distributed to all interested parties. (FT, Bloomberg, Investor Services etc.)

Reconciliation

Receipt of Statements of Holdings from underlying Fund Administration Companies.

Input and Matching of Statements of Holdings to SSR (rec.system)

Investigation and clearance of FoF breaks.

Creation, updating and maintenance of the Fund of Fund Centralised Recon on a daily basis to

communicate all open holdings discrepancies to the Fund of Fund Dealing team for investigation and

resolution.

Creation of Monthly Stats for Reconciliation Committee.

Investor Services

Investor services within a Hedge fund company is split out into five separate teams, we will cover the

individual roles of each of these teams in this project.

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1) Front Office

Direct contact for all investor queries.

Process and distribution of all contract notes.

Responsible for monitoring the back office exceptions log on a daily basis

Distribute statements to investors.

2) Back Office

Receive subscription & reds application form from client.

Conduct AML (Anti Money Laundering) checks.

Update exceptions log with any breaches to regulations (i.e. missing identification, forms not signed

etc.)

Complete World Check checks for all new investors and all redemptions.

Process transactions on Global share / NTAS / Iflex.

Once NAV received from PORTFOLIO VALUATIONS, fill transactions orders report and inform

front office.

3) Cash Team

Monitor receipt of sub proceeds.

Update NTAS, to assist front/back office in tracing cash movement.

Instruct Custody to transfer monies.

4) Statutory Reporting

Preparation of Interim & Annual Audited Financial Statements.

Timetables prepared and agreed with clients and auditors.

Information collated from all internal and external parties to complete statements.

Statements prepared in accordance with relevant accounting standards and listing rules.

Liaise with client and corporate secretarial team to finalise and approve statements.

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5) Market Data

The Market Data Dept cover both IFS and AFS; there are three offices which use the ‘Follow the

Sun’ methodology - Stirling (main point of contact for European offices) New York and Hong Kong.

Tasks include:

Receiving and loading via automated feeds from external pricing sources, such as Bloomberg and

Reuters approx 156,000 prices on a daily basis, to the relevant accounting systems. (Advent Geneva

and Icon)

Validating all above prices.

Receiving via feeds from external sources, information on all Corporate Actions.

Validating this information and loading onto the relevant accounting systems using an ATU

(Automatic Trade Upload).

Setting up of all newly acquired securities onto the relevant accounting systems. (information

received from the individual fund accountants)

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Chapter 3

The Investment Management

Front office

The Investment Management Cycle

In pursuit of performance, active hedge fund Managers (indeed all investment managers) carry out a

never ending cycle of analyzing investment opportunities, making buy and sell decisions, ordering,

executing and settling trade, maintaining and analyzing portfolio records, reporting the results of their

activity and launching back into the decision process.

Industry observers commonly divide the steps in the investment management cycle into two main

components:

Front office functions which involve making investment decisions and implementing them via

trading and

Back office functions which comprise the administrative, record keeping and reporting activities

that occur after the trade is made.

Front and back office functions differ fundamentally in nature. Within a management company, they are

performed by completely separate organizations. Some hedge fund companies do them all. In

Some cases the management company performs the front office functions (portfolio decision making and

trading) internally and contracts out back office functions to a service provider. This is the same case

which would be taken up in this project that is Patni acting as a Third Party Administrator for a Hedge

fund investment company Bysis.

This chapter focuses on the investment management front office and what it does for a hedge fund.

Investment managers must decide what to buy and sell. Active managers engage in research and analysis

to identify securities that are and aren’t attractive, match these to the needs of their portfolio to invest or

produce cash and order trades.

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Passive managers do not engage in any research. The makeup of a passive portfolio of securities is

determined by the make up of a benchmark that it mirrors. Both types of managers strive to make their

funds’ portfolio of securities confirm to their investment objective. Second, once they have decided, they

trade. Both active and passive managers engage in trade order management- the process of creating

orders to buy or sell securities, transmitting them to the appropriate broker or trading networks, and

executing trader with these counterparties.

These front office activities are the primary determinants of how well a fund performs. An active

manager succeeds to the extent that he identifies the right securities to buy and execute trades to buy

them at favorable prices. A passive manager succeeds to the extent that he or she efficiently matches the

fund to its benchmark, particularly when cash must flow in and out of the portfolio.

INVESTMENT ANALYSIS & PORTFOLIO MANAGEMENT

Investment analysis lies completely within the realm of an active management. Industry observers

describe the analysis & decision making activities investment managers carry out with a mix of

somewhat overlapping terms. Research generally refers to the process of gathering data from various

sources that can help identify bye or sell opportunities Analysis refers primarily to processing that data

into useful information, although some people use the term broadly to include research. Portfolio

management, narrowly defined means making buy and sell decision based on the results of research and

analysis and the current stat of the fund’s portfolio of securities. The portfolio managers exercise the

investment advisory function for the fund deciding what to buy or sell and when to do so. Active

managers make their decisions for two reasons:

1) To respond to cash flows to or from the fund caused by shareholder purchased and

redemption; and

2) To improve the performance of the fund by taking advantage of opportunities they

perceive in market.

Passive portfolio managers must respond to shareholder cash flows but make no trades in an attempt to

improve performance- since they do not believe that identifying market opportunities is possible, their

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funds tightly confirms to the benchmark. However they do trade securities to bring the fund back in line

when the benchmark itself has changed.

EQUITY ANALYSIS AND PORTFOLIO MANAGEMENT

In actively managed funds, equity analysts attempt to find opportunities for the portfolio managers. The

analysts search for particular stocks or groups of stocks that are either under priced (Buy opportunity) or

overpriced (sell opportunity) by the market. Analysts tend to focus on subsets of the overall market, such

as companies within certain industrial sectors and in some cases, work a specific list of candidate stocks.

There are two ways to do it.

First, at the quantitative end of the scale stands the fundamental analyst, who attempts to understand the

state of the company so as to make predictions about its future earnings. Fundamental analysts not only

study the reports published by and about a company, but also interviews its management and even visits

the company to find about the operations. They study the industry in which the company operates,

reading trade journals and attending conferences. They evaluate how the company stacks up against the

other ones in the same industry, and try to anticipate how the industry itself is likely to perform.

Secondly, quantitative analysts stand at the opposite end of the spectrum from the fundamental analysts.

Technical analysts study patterns in prices and volumes within the market to predict how a company’s

stock will move in future. Other quantitative analysts evaluate stocks using computer models that attempt

to predict stock prices, or identify over or under priced stocks by looking at the correlation between the

prices and one or more predictor variables.

Not surprisingly, many if not most fund groups follow neither purely quantitative nor purely qualitative

approaches. The portfolio managers use the analyst’s recommendations as one input in making buy and

sell decisions. He balances these recommendations against the fund’s cash flow needs and current

composition of the fund’s portfolio of securities.

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FIXED INCOME ANALYSIS AND PORTFOLIO MANAGEMENT

A fixed income fund usually concentrates on a particular sector of the debt security markets. A fixed

income sector is typically defined by the type of issuer (e.g. US Treasury, federal agency, corporation,

and municipality) and the average maturity of the holdings (e.g. short term, intermediate term, long

term). Two types of analysts are most commonly encountered in fixed income investment management

organizations. Credit analysts resemble the fundamental analysts of the equity side, in that they study the

fundamental situation of the issuer to determine the risk of default associated with the security. Like the

equity analysts, they analyze financial results, management quality, industry trends, economic factors;

any thing they think sheds light on the issuer’s ability to meet the interest and repayment obligations of

the debt security.

Quantitative Analysts develop and run mathematical models to help them understand the behavior of

both individual securities and the funds portfolio as a whole under different set of assumptions. Much of

what of what they do is analyzing scenarios – what would happen to a specified security or portfolio

based on changes in interest rates, payment speeds, or other factors.

They also look for Patterns in historical data, not only data on security prices, but also macro economics

and demographic variables. The quantitative analyst’s attempts to point out opportunities to the portfolio

manager and also to quantify the risk associated with a particular strategy.

Like the equity manager, the fixed income portfolio manager, balances the analyst’s recommendations

and findings, the funds cash flow needs, and the current portfolio structure. When deciding which

securities to buy, the portfolio manager considers not only which specific issues offer opportunities for

superior performance, but also what their addition would do the overall risk exposure of the fund.

Trade Order Management

The activity of the analysts and portfolio managers culminate in decisions to buy or sell securities. Trade

order management refers to the set of activities undertaken to carry out these decisions.

The portfolio manager generates a trade order – an instruction to buy or sell a specific issue or type of

issue. He gives this order to the firm’s traders for execution.

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In industry parlance, hedge funds make a part of the buy side, the institutions that acquire the securities

to hold in a portfolio that serves the purpose.

Broker dealers and other intermediaries belong to the sell side. Sell side firms buy and sell securities

primarily to make money via the transactions themselves, as when a broker charges a commission for

executing a stock trade. Sell side firms sometimes take positions in a securities (i.e. buy them for their

own account with their own capital), but only because they hope to sell the holdings at a profit.

Broker Selection

A trader may decide to place an order with a sell side broker for a number of reasons. It may the only

way to get the liquidity. Broker can seek out counter parties for a trade, or even use their own firm’s

capital to help complete the trade. For large orders for a given issue, this use of the brokerage firm’s

capital may be necessary to complete the trade. When a fund wishes to sell a larger block of a stock then

the market can easily assimilate, the brokerage firm may assist by buying the block for its own account.

This is all part of getting best execution. When the fund decides to buy or sell a issue, it bases the

decision upon an assumption of particular buying or selling price.

The fund pays the broker for handling a trade either by an explicit commission, or via a spread. Buy side

firms such as hedge funds may also receive research services (broadly defined to include not only

information, but also computer hardware and software that support research) from the broker in return for

some part of the commissions generated by the funds trading business.

The Cost of Front Office

The single biggest component of expense for most actively managed hedge funds is what they pay their

investment advisors for these front office functions. While the investment advisory fees often includes

back office functions as well, the major part of the fees, goes towards paying for decision making and

trading, in some cases in which the fund has contracted separately for investment advisory and back

office functions, the fee amount for the front office function is stated explicitly.

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Chapter 4

The Investment Management

Back office

The front and back office operations in investment management resemble respectively the motivator &

hygiene factors in Herzberg’s famous theory of motivation. Front office activities-analysis, portfolio

management, trading determine the income & growth in value in the fund’s portfolio. They contribute

visibly to the fund’s performance. After the analysts have found stocks & bonds to buy or sell, and the

portfolio managers have made their decision and traders have implemented those decisions on the

markets, much work remains to be done to turn all that into value for shareholders. The trade must be

carried to completion-confirming the various parties understanding of trade details, moving money &

transferring security ownership. The securities themselves must be held in safekeeping. The effects of the

trade must be reflected in the securities inventory records kept by the investment advisor to support

subsequent investment decision making. The inventory must be kept current as the securities in it earn &

receive dividends & interest & issuers split, reorganize & carry out other corporate actions. The results of

the investment advisor’s activity must be examined to ensure compliance with regulatory, prospectus &

policy requirement. Reports must be prepared for both external & internal parties. Carrying out or

overseeing all these activities fall within the responsibility of investment management back office.

Back office players

While the term “back office” refers most specifically to the investment manager’s investment operations

group, this group interacts with various external players to carry out the back office functions.

INVESTMENT OPERATIONS

The central component of an investment manager’s back office is the investment operations group that

maintains security records, performs various monitoring & reporting functions & oversees the trade

process to completion. The back office is typically a part of the same organization as the investment

39

advisor, although it can be separate. Several firms provide back office functions on an outsourcing basis

for small fund groups.

DATA MANAGEMENT: The data management group within investment operations plays an

important role in maintaining data store-record of the fund’s trade & the inventory of the

security holdings. As new issues are acquired, data management must set up the security

master records in the system, which for some instrument types (for example, debt securities

with individual payment schedules), can be quite complex. Data management also ensures

that that the system takes various feeds of information each day, typically from external

information vendors, via automated computer transmissions. These information feeds include

security prices, dividends & various other corporate action notifications. For securities for

which automated pricing are not available, operations must obtain & manually enter the

prices.

ACCOUNTING: The accounting group ensures that the securities inventory is kept correctly.

It posts income transactions, such as dividends, interest payments and pay downs (the

combination principal & interests payments made on mortgage-backed securities). As

corporate actions such as stock splits, name changes and calls occur accounting ensures that

the inventory is adjusted to correctly reflect their effects. Every investment management back

office depends on this information about the state of the portfolio to support its analysis &

trading decisions.

TRADE OPERATIONS: the major part of the operations group provides trade support. That

is it takes the steps required to complete the trade that the front office has executed. These

actions are collectively known as the trade settlement process.

COMPLIANCE & RISK MONITORING: Back office staff monitors the trades & holdings of

the fund to ensure that the investment advisor is neither breaking the rules nor subjecting the

fund to undue levels of risk. Failure on the part of the fund to comply with legal & prospectus

restrictions can lead to legal liability for the directors themselves. In actuality a fund’s

directors engage the manager or another entity to carry out the operational steps involved in

40

compliance monitoring, while they retain ultimate responsibility. Portfolio compliance

monitoring falls into two broad categories; Pre-trade and Post-trade compliance. All fund

groups perform post trade compliance monitoring in one way or another. The compliance

group examines the records of the funds portfolio holdings at periodic intervals, usually

quarterly or monthly, looking for cases in which a rule has been broken. This monitoring is

typically evidenced by checklists that are completed and signed by a compliance officer. Pre-

trade compliance monitoring helps the investment advisor avoid this problem in the first

place. This checking is implemented via computerised trade order management system. First

compliance articulates the rules in a way that they can be input into the system. Then, as each

trade order is entered, the systems check it against the rules. This checking does not eliminate

the need for post-trade or back-end compliance monitoring. Market action may bring a funds

position out of compliance with at regulation even if no trade have been made.

Risk monitoring can be as simple as measuring certain attributes of the funds portfolio

(duration, credit rating profile, country exposure, etc.) and comparing them to targets or

benchmark. Portfolio managers do this sort of monitoring in the normal course of running the

fund. In other cases, risk management may involve running computer models that project

what would happen under various circumstances (interest rates change, foreign exchange

rates, etc).

CLEARING AGENTS & DEPOSITORIES

A clearing corporation approached the problem of handling high trade volumes by acting as a settlement

intermediary between all parties involved in a trade. The clearing corporation nets all the securities and

cash flows to & from each of its members each day, & creates a net movement of securities & cash for

each member. Because of this netting, the clearing corporation guarantees the members that if one side or

another to a trade failed to settle, the solvent party could still complete its side of the trade, with the

clearing corporation as counterparty.

A depository holds securities in its own custody & records changes in the ownership of those securities

by making book entries in its computer systems. The securities themselves might be represented by

physical certificates residing in the depository’s vault, or they may simply be computer records

(“uncertified”). Different depositories hold different types of securities including corporate equities &

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bonds, municipal bonds, mortgage-backed bonds, US treasury & agency bonds & various types of money

market instruments.

POST TRADE SETTELMENT PROCESS

Executing a trade means getting agreement between a buyer and a seller to exchange a specific quantity

of a specific security at a stated price. The way this is done ranges widely, from informal human

interactions to totally automatic matching done inside an electronic communications network. However it

is done, it triggers a series of interactions among several parties that eventually results in the buyer of the

security getting ownership & the seller getting cash. Collectively, this chain of events constitutes the

trade settlement process.

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43

44

45

COST OF BACK OFFICE

Most often, the cost to the fund for many back office functions is included in the fund’s advisory fee.

Both the ICI & industry consulting firms (strategic insight, FRC) include both front office ( that is

investment decision making ) & back office ( settlement & record keeping ) operations, along with other

management company functions, such as contract administration, within a composite figure. The

allocation of the advisory & administration fee amount between back & front office varies from fund to

fund, but in most actively managed funds, the back office share of this amount is much lower than the

front office share. Compliance & risk monitoring costs are impossible to determine because they are

always bundled within a large package of services. They are usually a part of the fund administration

services provided by the management company. The actual procedures may be carried out by staff

working for the investment managers, the fund administrator, the custodian or a combination of these.

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Chapter 5

Outsourcing of Back office operations to Patni Computers.

As a small but very significant part of the Hedge fund accounting Patni Computers plays a significant

role in the Conversion process. Firstly, this process is known as conversion because here at Patni we

convert data relating to a hedge fund from one platform where it already exists to a new one and also

updating the current activities relating to that fund which are known as Catch Up activity. It is the

transfer of data from one software that is the Legacy software also known as Hiport to new software

called Star Eagle. For doing so following steps need to be followed along with the required information.

Conversion Procedure:-

1) Fund Set up Stage: This is the first stage where the base is created for the fund to be converted on

Eagle. Unless & until this is done no entry can be made in the system. Accounting basis for any fund can

be: “GAAP” or “USTAX”

2) Portfolio Review and SMF Set up: In this stage we basically check whether each and every security

in that portfolio is set up on Eagle or not. If not then we get back to the client to get the set up done.

Security Master File i.e. SMF is related to the activity of setting up a particular secular security of a fund,

from one platform to another that is from Hiport to Eagle.

Under SMF a list of securities to be set up is given by the client which includes Hiport ID. With the help

of this, we extract various information which is helpful in setting up the security. There are various types

of securities like common stock, warrants, options, SWAPS, futures. For each type of security there are

different panels in Eagle Star. While setting up a security information is taken from Hiport. A special

Ticker is given to each new set up of Eagle. By this ticker any security and its description can be found

and identified on Eagle. For each type setting up rules are different.

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ADDING X-Ref: After setting up the security, each security has two identifiers, one is Eagle ticker &

other is Hiport Id. By doing X ref we add Hiport id to Eagle Star. Other information pertaining to

security viz. sedol, cusip & internal Id can also be added.

DUPLICATION CHECK: Every security has a unique set up so before setting up any security, it is

always tried to be located in Eagle to avoid duplication of set up.

RESEARCH: It includes the study of various types of set up.

3) Analysis of Reports and Data preparation for the Conversion tool:

This forms an important part for Conversion; following reports are generally received from the client

from where the fund is coming

Portfolio either at Lot level or Position Level

Cash Report

Balance Sheet & Profit/Loss

Trial Balance

At this level we should check the data integrity, i.e. the figures in one report must be in line with other

reports, else go back to client for confirmation. For that we

(a) Reviewed the Information provided especially the Trial Balance Report and cross verified with its

Supporting reports.

(b) Analyze each and every number on the TB and identify the appropriate up loader that can be used

for Conversion, So that the final TB should reconcile with the Client’s TB.

The following Conversion tool were used for the Conversion

Open Lot Up loader: For uploading the Securities. The open lot up loader will be converted in the text

file (pipe format) and will be forwarded to GDS, Dublin for uploading it. The following are the check

points for the Open lot up loader:

48

(a) The security identifiers should be properly inserted, with the respective identifier type, i.e.

TICKER, SEEDOL, and CUSIP.

(b) For FOF Conversions- The Quantity will be “1” and the cost will be its unit price.

(c) The Different dates mentioned in the up loader should be checked i.e. Holding date,

(d) Conversion date, settlement date etc.

(e) The open lot identifier should be a unique code, associated with a particular lot. Even if we

have to upload the same again, the code will be again a unique number.

(f) The Investment type should be properly inserted, e.g. – “EQ” for Equity, “OP” for Options

and “FI” for fixed income securities

NOTE:

Once all the trades have been uploaded by GDS, run the URGL on Eagle and generate PV report, Trial

Balance. Review the PV and Trial Balance (sector by sector, and then by the Master level if needed) and

verify that the balances can be traced back to the information provided by the Client/Take-On Source for

our audit trail documentation.

Cash Up loader: For Cash Balance. This can be uploaded using “Batch Up loader Tool”. The following

are the check points:

(a) The currencies, both local and base should be properly placed.

(b) The FX rate between two currencies should be properly written in the appropriate column.

(c) Ensure the currency codes.

(d) Ensure the flow of cash and identify appropriate heads- DISB (For Outflow) and RECPT (For

Inflow).

(e) The amount should be given, both in base and local in the respective columns. And the

amount should be cross verified with the FX rates mentioned.

GL Up loader: This is the last upload once everything is done on Balance Sheet, using this uploader we

can restore the different balances in line with the P & L account to reconcile the net assets as per Balance

Sheet.

The check points for GL Upload are given below:

49

(a) The currency should always be base currency.

(b) Currency codes should be verified.

(c) Make sure the Dr. and Cr. are properly placed as per the nature of the head.

(d) Assets- Dr. and Liabilities-Cr.; Expenses-Dr and Incomes- Cr.

(e) The amount should be same in both the amount columns.

(f) The COA codes should be verified.

Manual Entries (Eagle Panels): The expenses which are not fixed, such as- Management fees, will be

posted by using Eagle Income Panel “Post Misc. Expenses”.

Any other item such as- Investors Subscription received in advance can be posted through Eagle “Cash

Contribution Panel”.

Pricing: During the preparation of price uploader confirm the price source for various security types by

referring to the list “Master/Sector detail” under REFERENCE PANEL.

To reconfirm the price source we can refer to the PV report panel by CTRL+SHFT+RIGHT CLICK.

We can even price one security manually by going to Add issue price and then input the price

Once the Price Up loader is complete, can be sent to ASG (Associated Services Group) upload of the

same.

4) Reconciliation of Eagle Portfolio and Balances:

Once all the trades have been uploaded by GDS, run the URGL on Eagle and generate PV Report, Trial

Balance. Review the PV and Trial Balance, and verify that the balances can be

Traced back to the information provided by the Client. Once the TB is finalized, close the

Accounting period.

Once the TB of the Converted fund on Eagle is reconciled, prepare the Conversion

Package- This package includes-

(a) Portfolio Valuation Report

(b) Trial Balance

(c) Unsettled Transaction Report and

50

(d) Cash Balance Report.

5) Sign Off From Operations

Send the entire set - portfolio valuation, TB, Balance Sheet and Profit and Loss from Eagle to the

operations for their review and sign off on successful conversion.

51

FINDINGS AND ANALYSIS

It all started with a Pilot batch consisting of seven well experienced associates picked up from different

institutions in the field of finance throughout the country. This batch was trained on Eagle investment

systems by the company who developed this accounting software i.e. EAGLE STAR in United States at

Boston.

Post training two resources were allocated for conversion project. The task was to convert the funds from

existing platform to Eagle Star along with the new clients which were directly loaded into the new

software; these funds were named as takeon/speed funds.

Hiport Funds: The funds which were already existed on the previous software &

converted to the new platform.

Take On/Speed Funds: New clients directly taken on the new platform.

CHALLENGES

Communication: The geographical differences between the client place & offsite created gap

in communication which resulted in some obstacles in the flow of transfer of information initially

but as the process picked up pace such problems were gradually reduced to a great extent.

Accounting Issues: Since the funds were to be converted as on particular date proper detailed

information was given for both Assets and Liabilities (including any receivable/payable items) for

Profit & Loss account and the details were not available since it pertained to a larger period i.e.

from the inception of the fund. The solution derived for this problem was to put the figures as it is

or transfer the net income/loss to the retained earnings account.

Multi Currency Accounting: This was a major area where more care was needed due to

non exposure of multi currency accounting. The issue currency was called the local currency &

the fund currency was called the base currency. Both the cost and market value was given in both

52

local & base currencies. Also the resources who were experts in the field of finance were very

well acquainted with the Indian Stock market scenario and Accounting system but had less

knowledge about American GAAP which was applicable for Hedge Fund Accounting.

Foreign Exchange Rates: This was again an area of concern requiring due diligence. There

was contradiction at arriving the Fx Rates. The problem was to arrive at the Fx rate from Base to

Local or vice versa. Therefore researching on and finding the solution to the differences between

figures due to Fx rates

Converters: The converters used during training were in the form of Excel sheet & the

description of data to be loaded was given in Text format whereas in actual atmosphere the

description was given in numeric Tags.

Attrition Rate: This is a disease of BPO Sector in India which did affect Patni also. Off

shoring of work due to lack of expertise abroad resulted in generation of employment

opportunities in Indian BPO Industry. The Indian Finance industry was not able to meet this

shortfall of expertise resources in this sector which resulted in better opportunities of existing

resources which resulted in a hike of attrition rate. Leaving resources not only interrupt the flow

of work also affects the overall cost of the company.

Time Zone differences: Since India is ahead by approximately 9 hours & 30 minutes

therefore the working hours were from 17:00 hours to 03:00 in India for which the resources were

not ready to work. This problem was solved by agreeing with the client that Indian resources

would give live coverage up to 13:00 hours in U.S. Anything post lunch would be taken care the

next morning and delivery of the same was ensured before they step in the office the next

morning.

53

CONVERSION WORK FOR THE YEAR 2006

JANUARY 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 3 3 0Fund Accountant 2 0 0 0Fund Accountant 3 2 2 0Fund Accountant 4 1 1 0Ops 1 0 1

TOTAL 7 6 1

FEBRUARY 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 4 4 0Fund Accountant 2 3 3 0Fund Accountant 3 6 6 0Fund Accountant 4 4 4 0Ops 4 0 4

TOTAL 21 17 4

MARCH 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 4 4 0Fund Accountant 2 3 1 2Fund Accountant 3 6 6 0Fund Accountant 4 5 5 0Ops 0 0 0

TOTAL 18 16 2

APRIL 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 3 3 0Fund Accountant 2 3 3 0Fund Accountant 3 0 0 0Fund Accountant 4 7 7 0Ops 0 0 0

TOTAL 13 13 0

MAY 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 10 7 3Fund Accountant 2 5 5 0Fund Accountant 3 8 6 2Fund Accountant 4 6 6  Ops      

TOTAL 29 24 5

JUNE 2006

54

  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 7 7  Fund Accountant 2 2 2  Fund Accountant 3 4 4  Fund Accountant 4 4 4  Fund Accountant 5 1 1  

TOTAL 18 18 0

JULY 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 6 6  Fund Accountant 2 2 2  Fund Accountant 3 2 2  Fund Accountant 4 2 2  Fund Accountant 5 7 7  

TOTAL 19 19 0

AUGUST 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 7 7  Fund Accountant 2 5 5  Fund Accountant 3 5 5  Fund Accountant 4 6 6  Fund Accountant 5 5 5  

TOTAL 28 28 0

SEPTEMBER 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 6 6  Fund Accountant 2 6 6  Fund Accountant 3 8 8  Fund Accountant 4 10 10  Fund Accountant 5 6 6  

TOTAL 36 36 0

OCTOBER 2006  Target Fund for Conversion Conversion done by Patni Conversion done by BisysFund Accountant 1 7 7  Fund Accountant 2 5 5 0Fund Accountant 3 4 0 4Fund Accountant 4 11 11  Fund Accountant 5 8 8  

TOTAL 35 31 4

NOVEMBER 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 7 6 1

55

Fund Accountant 2 2 1 0Fund Accountant 3 1 0 1Fund Accountant 4 6 6 0Fund Accountant 5 8 8 0

TOTAL 23 Plus 1 in progress 21 2

DECEMBER 2006  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 3 3 0Fund Accountant 2 4 4 0Fund Accountant 3 0 0 0Fund Accountant 4 6 6 0Fund Accountant 5 4 4 0

TOTAL 17 17 0

J an '06 to Dec '06 Conversion Project

67

4046

68

39

5

63

37 39

68

39

4 2 7 510

20

40

60

80

1Target Fund for Conversion Conversion done by Patni Conversion done by Bisys #REF!

TOTAL FOR CHART  Target Fund for Conversion Conversions done by Patni Conversions done by BisysFund Accountant 1 67 63 4Fund Accountant 2 40 37 2Fund Accountant 3 46 39 7Fund Accountant 4 68 68  Fund Accountant 5 39 39  Ops 5   5TOTAL 264 Plus 1 in Progress 246 18

PeriodTotal Fund Conversion by Patni % Conversion Activities done by Patni

Jan 06 6 100%

56

Feb 06 17 100%Mar 06 16 110%Apr 06 13 95%May 06 24 105%Jun 06 18 100%Jul 06 19 105%Aug 06 28 100%Sept 06 36 100%Oct 06 31 100%Nov 06 21 100%Dec 06 17 100%TOTAL 246

0

5

10

15

20

25

30

35

40

Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sept 06 Oct 06 Nov 06 Dec 0685%

90%

95%

100%

105%

110%

115%

Total Fund Conversion by Patni % Conversion Activities done by Patni

More than 100% of the total work done by Patni actually signifies the work done apart from conversion

activity like the catch up activity done after the conversion has taken place

Total Fund Conversion by Patni

57

As it can be observed in the diagram for the year 2006 we see that maximum number of funds was

converted in the month of September and minimum in the month of January. If we analyse the data how

much percentage of total work was done in which month we can derive the following figures.

PeriodTotal Fund Conversion by

Patni % Of Total Jan 06 6 2.44Feb 06 17 6.91Mar 06 16 6.5Apr 06 13 5.28May 06 24 9.76Jun 06 18 7.32Jul 06 19 7.72Aug 06 28 11.38Sept 06 36 14.63Oct 06 31 12.6Nov 06 21 8.54Dec 06 17 6.91TOTAL 246 100

% of work done in each month

2% 7%7%

5%

10%

7%8%11%

14%

13%

9%7%

Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06Aug 06 Sept 06 Oct 06 Nov 06 Dec 06

The following reasons can be observed for this variation.

58

1) Time of conversion: This factor contributed because at the beginning of the year there were less

conversions because December 2005 NAV got delayed & that is why there was pressure in January.

There were more securities of the fund to be set up on Eagle by the SMF team. Later on due to the

presence of some securities in more than one portfolio, they did not require set up again. Hence less time

was taken for the funds that came later on for conversion than the funds that came earlier.

2) Composition of portfolio: This factor has direct relationship with the time taken to convert a fund.

In portfolios where there are more types of securities would take more time than the one in which there

are less types of securities because the uploading or pricing may differ from one type of security than for

other type. For e.g. if portfolio of fund A has only equities and another fund B has equities, SWAPS and

forwards then obviously fund B would take much more time than fund A.

3) Size & nature of the fund: If a fund is small with less number of securities then it would take less

time than the fund with more number of securities. Nature of the fund also matters. If a fund is simple it

would take less time than one which is more complex. In the latter case before conversion everything

should be reconfirmed from the client and not before the client gets back on that issue can the work start,

so that would take more time and less of such funds can be converted in a span of one month.

4) Fund accountant & resources available: There can be times when a fund accountant who has to

lead the conversion for a fund scheduled for that month is not available so there can be delays in work. In

the month of February, March and April there was a major change in the team working under the

Investment Management Team and since they were new recruits & less experienced the target could not

be met which was 16 to 20 funds in a month. So the ultimate result was that this work load got

transferred to the coming months and that is depicted in the table that in the month of May 24 funds got

converted which was more than the target. On the other hand there can be a situation where due to non

availability of resources in Patni work gets delayed. It can be due to a team member gone for leave or an

employee leaving the organization and at that moment no person available to replace that person.

59

5) Take On Funds: In the month of August, September & October the number of funds crossed the

upper limit of the target because there were many take on funds which were not present on the older

platform. The average number of funds to be converted in a month was initially calculated by dividing

the total number of funds to be converted by the total time to be taken which was predetermined. So in

these months due to extra funds coming in all of them had to be converted.

So this disproportion can be caused by any of the above reasons.

60

SMF Team Performance Jan 06- Dec 06Activity No of securities received No of Securities Processed No of securities un-

processed

Adding X-ref 2,763

2,763

-

Accrual Check -

-

-

Duplication Check 5,285

5,285

-

Research 196

196

-

Quality Check -

-

-

Securities Set up 17,352

17,352

-

Others -

-

-

Total 25,596

25,596 0

-2,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

Adding X-ref Accrual Check DuplicationCheck

Research Quality Check Securities Setup

Others

No of securities received No of Securities Processed No of securities un-processed

Accuracy:

• Total Securities Set up – 25596

• Errors – 0

• % Errors – 0.00 %

• Sigma – 6.00

61

Jan 06 to Dec 06Activity No of Securities Processed Time taken for the activity (in

hrs)Adding X-ref 2763 91.65

Accrual Check - -

Duplication Check 5285 161.17

Research 196 19.92

Quality Check - 162.75

Training - 318.15

Security Setup 17352 1318.54

Total 25596 2078.18Total Hrs till Dec 3027.58Non Productive Hrs 949.40

-1,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,000

Adding X-ref AccuralCheck

DuplicationCheck

Research QualityCheck

Training SecuritySetup

0

200

400

600

800

1000

1200

1400

No of Securities Processed Time taken for the activity (in hrs)

62

SMF Team Performance Jan 06- Dec 06

In the above figures we see that the maximum amount of hours of the SMF team is taken up by the

security set up in the whole year. It is so because the very purpose of the process is to convert a fund

from one Software to a new one and also updating the catch up activities for that each and every security

under each portfolio need to be set up in Star Eagle because then only it can be a part of the fund to be

converted fund. One more thing which is very significant that can be noticed here is that the error rate is

0 % for all the activities done by the SMF team which shows the capabilities and efficiency of the

resources employed in Patni. As far as conversion team is concerned whatever doubts and issues were

faced by the team members were well taken care of by the client and the operations team. This is done by

a proper network through which information can be transferred from the client to us. In the conversion

process of each fund although major part of conversion activity is done by Patni but full support is given

by the client for any issues therefore the possibilities of errors are almost negligible. Due to the

conversion process having a successful going Patni expects some more business coming in with more

clients and contracts in pipeline. Patni have successfully completed more than two years showing not

only efficiency but also time management ability because not only has the funds conversion been

complete but also have been able to meet the deadlines related to the conversion dates of each and every

fund. Presently we are working on only Take on funds.

63

RECOMMENDATIONS

1) Training : The resources that join Patni Computers are given on the job training before they get

down and work on real conversions on the floor. It should be noticed that the employees learn only by

observing the experienced employees doing live work and learn from the same. Although this method is

quite fruitful but as everything has another side this method of training has its own drawbacks. People

usually learn more if they are given enough time to understand the process and off the job training and

when they are well acquainted with even the minute details they should then start working.

2) Dummy Atmosphere: Even after the resources get on the job training, there is quite a lot of

difference between understanding what the other person is doing and having the confidence and finally

doing it themselves. The solution to this can be that the new and inexperienced employees should after

the briefing is given, made to work on dummy platform which is similar to the actual conversion

platform (the data is transferred from real platform to the dummy atmosphere to keep it updated on daily

basis) so that they know the cause and effect relationship of every action and its result on the new

platform or the software.

3) Use of Converters: Presently the conversion team use various uploaders such as open lot uploader

to transfer open trades into the system, cash uploader to upload cash, price uploader to load the closing

price of the trades, GL uploader to upload the single effect entries of P&L items as well as Balance sheet

items and so on. These uploaders are made by putting in data along with the Tag numbers which the

system understands. But this method is a little outdated and time consuming and also the possibility of

making errors due to manual intervention. On the feedback of the conversion team the technology team

supporting the systems came up with “Data Converters” with the help of which the data from the old

platform could be transformed into uploader by running a simple command and the output was a real

uploader ready for upload.

64

LIMITATIONS OF THE PROJECT

While conducting this study there were certain problems which affected the project. Limitations of this

project are:

Absence of Hedge Funds in India: Since Hedge Funds do not operate in Indian stock market, collection of primary data was not

possible. Because of this the whole information gathered was based on secondary data. Limited

information could be gathered from sources like websites which show only limited details about

hedge funds operating in US Stock market. And even if it was available they were all paid sites so

data collection was a little problematic.

Questionnaire on study and numeric data: Since the profile I am working on does not include any dealings with any of the parties involved

in the execution and accounting of the trades, forming a questionnaire was not fruitful in any way

and whole of the analysis is only based on Patni team performance for the year 2006. That is the

reason only percentages were used as statistical tool and no other tool could be applied for the

study.

65

CONCLUSION

To finally conclude my study, I want to say that it was a very knowledgeable experience making this

project. While collecting data for it I got to know lot of things that I was initially not aware of. It was so

because as a student of MBA we get to know more about the Indian financial market and the overall

scenario and less of International finance. One more aspect was that hedge funds do not operate in India

that is why getting in depth knowledge about it and understanding the concepts, procedures was quite

difficult but working with Patni Computer systems gave me all the exposure about hedge funds and I

could know everything about this financial instrument and it’s functioning.

This project not only throws light on hedge funds but also shows how Patni Computers play an integral

role in hedge fund accounting. The study was also about the internal working of Patni and what has been

the contribution of our organisation in terms of:

Time taken for performing the duties

Responsibilities assigned

Meeting the deadlines

Interaction with the client

Contribution and support of the Operations team abroad

What all problems were faced or are still persistent

How these problems can be rectified and so on.

Finally I have given some recommendations on the bases of my own findings and analysis and also

limitations of my project study.

66

BIBILOGRAPHY

1) Reading material of Patni.

2) Patni website and intranet

3) Hedge Fund websites

4) Company records on performance for the year 2006

67