Reducing Operational Risk
Experience at Bern Square can help Hedge Funds reduce operational risks by putting policy, plans and process in place to mitigate risks; regulators and investors are increasingly expecting evidence that operational risk is addressed.
By minimizing the risks, many Hedge Fund managers have found they promote a more reputable service and thus avoid any negative impact on their reputation and that of the Funds they handle.
Typical Operational Risk Services:
- Mock 'Operational Due Diligence' to improve investment operations
- Preparation of AIMA Due Diligence Questionnaire ('DDQ') documentation
- Operational Procedures Review
- Operations Manual Implementation
- Mitigating People Risks
- IT Risk Review
- Business Continuity and Disaster Recovery
- Information Security Policy Implementation
Conducting a mock 'operational due diligence' on your fund operations will allow you to see risk areas that would concern investors. This is very useful to improve your operations across all parties involved since this covers all aspects of your legal structure, governance, people, processes, systems and service provider relationships. Note reports produced cannot be used for any marketing purposes.
Bern Square has reviewed many AIMA due diligence questionnaires and still finds that many do not address investor concerns. Bern Square staff can help Hedge Funds construct questionnaires that cover the AIMA scope but also offer a transparency and clarity to assist investors in their due diligence process. The result can save valuable time of hedge Fund staff when addressing investor queries by referral to a comprehensive questionnaire.
A complete review of current procedures over all operational areas: Trading, Administration, custody, service providers etc with a view to identifying gaps and recommending improvements. This would cover the vital areas of cash management and financial controls.
How do you go about cash management for trading and custodians; what about supervision and sign off authority for asset transfers?
Where might be the financial risks when using service providers?
Do you have a firm procedure for resolving valuation issues that has the required oversight?
How do you reconcile Administrator NAV calculations? Investors increasingly want to see formal NAV calculations completed by a third –party and firmly checked by a secondary process.
Reducing risks and helping the investor due diligence process, a complete operations complete manual of procedures covering your operations is a valuable way to cover the domain of operational risk complemented by a continual process for improvement. Bern Square has experience of writing such documents that make clear procedures for the manager and the investor.
As a fund manager’s operation grows and staff numbers increase, people have been an area of risk to a growing successful fund manager which is often not publicized. Bern Square from their actual career experience and other client exposure know this is a definite area of risk. Intellectual property can be stolen, unauthorized access to restricted data gained and expensive employment issues can and do occur. For those Fund managers that have concerns, Bern Square know how to mitigate such risks with the implementation of better on-boarding process, HR procedures and the implementation of tighter employment contracts with adequate exit conditions. Moreover, Bern Square can offer sensible risk reduction advice to deal with employment breakdown situations.
A systems and technology review would elicit where you may have operational shortfalls. For example, in IT outsourcing contracts, in the software release process, software compliance, in market data feed operations, in technology capacity and resilience and in security against cyber-crime.
Bern Square staff have completed many Business Continuity plans, even to the extent of checking that service providers will not let you down. Investors are not only interested that your systems are kept available; they also interested to see that all the people risks in business continuity have been dealt with adequately. Bern square can offer practical recommendations to reduce costs, increase automation or if appropriate move your technology operations to an outsourced serviced cloud environment.
By referring to prevailing ISO standards, Bern Square can ensure all aspects of your IT Operation is secured covering the whole domain of information Security internally and externally: access control, data security, network security, segregation of duties, software version and production control, capacity issues etc. To ensure the whole domain of information security is achieved, Bern Square can implement an ISO 27799 security policy for the fund manager.