Backstop Shortlisted For 9 HFM US Technology Awards and 3 Private Asset Management Awards

As our clients know, we’re committed to providing the alternative investment industry with a comprehensive range of solutions that facilitate every aspect of the lifecycle of capital. Our recent inclusion on the shortlists of two respected industry awards is a testament to that dedication. We’re both proud and humbled to have been recognized by these prestigious organizations.

The HFM US Technology Awards uses a rigorous judging process by a panel of industry experts to recognize IT and software firms that provide exceptional customer service and innovative product development for the hedge fund industry. They’ve included Backstop on the shortlists for these awards:

  • Best compliance product
  • Best fund accounting software
  • Best risk management software
  • Best CRM system
  • Best outsourced solution
  • Best security solution
  • Best technology solution for hedge fund investors
  • Best overall technology firm – client service
  • Best overall technology firm

The Private Asset Management Awards honor key service providers within the private asset management industry. The awards for which Backstop is in contention are:

  • Best outsourced CIO solution
  • Best family office service provider
  • Best cyber security solution

We’re proud to have been recognized for our understanding of the unique needs of alternative investment firms, and the interconnectedness of their processes. We’ll continue to strive for excellence, and to serve the alternative investment industry even more effectively, as the future unfolds.

If you have questions, or would like any additional information, please contact us at your convenience.

Transparency Is What Differentiates You In Private Equity Investor Relations

By Adam Pinkert, Director, Private Equity Solutions

Are you looking to differentiate yourself in the Private Equity (PE) Investor Relations space? The way to do so is clear … in fact, it is transparent. Your investors and the Limited Partner (LP) analysts who serve them are looking for a massive increase in data transparency.

Basic Quarterly Reports are no longer sufficient in this new world where even the smallest investors can have customized databases at their disposal. These investors are not content to sit back passively and wait for their investment returns. Instead, there is an unprecedented appetite for data consumption. Investors and LP analysts are more active and involved in the investment landscape than ever before.

Download the white paper, There’s A New Trend In Private Equity Investor Relations: Increased Data Requests From Investors, to learn more about:

  • The changes taking place in the PE industry today
  • What your investors are looking for in communications about their investments
  • How to respond to these increasing market pressures with agility

While superior performance will always be your primary goal as a PE firm, the success of your business now also depends on what data you communicate to your investors and LP analysts, and how you communicate that data. In the marketplace today, data makes you different.

The Top Ten 2017 New Year Resolutions Every Alt Firm Should Make

By Michael Neuman, Andy Phillips, Adam Pinkert, and Bob Goldbaum

Can you believe that 2017 has dawned? It’s time to make some New Year’s Resolutions. Below are the 10 New Year’s Resolutions we believe every alternative investment firm should be making in 2017 – think of them as the alt equivalent of losing weight, eating healthier, and getting organized.

Resolution #1: Generate Structured Data.

Unstructured data is the equivalent of having a pile of sand and trying to build a house from it. It just isn’t possible; no matter how much sand you have, you can’t use it. Structured data can be likened to concrete blocks: the sand has been transformed into a usable, useful building material. Set up your systems to generate structured data, and you will have the raw material you need to fulfill Resolution #2.

Resolution #2: Create Actionable Insights.

Alt firms are awash in data, but how many can create actionable insights from that data? Data (even structured data) on its own is nothing more than a static pile of information. Data coupled with analysis is immeasurably more: it delivers insights to guide your investment, marketing, and business strategies. So use the structured data that you generate to build a resilient and agile business.

Resolution #3: Improve Operational Efficiency.

Efficiency is a matter of continuous improvement; as the new year begins, take a good look at your current operations to pinpoint areas to target. For example, your data analysis (Resolution #2) may show that one of your back office operations is bogged down with a complicated workflow that could be streamlined. Or, you may look at your third-party vendors and discover that one of them has additional service options you were not aware of that could benefit your operations.

Resolution #4: Activate a Capital Retention Plan.

As an alternative investment firm, you want sticky capital to help ensure stable revenue streams. But what are you doing to create stickier capital? What strategies do you have in place to prevent outflows of investor capital? Pursuing new investors is necessary for business growth, but it is not sufficient – you need new capital and you need to retain current capital to succeed.

Resolution #5: Engage in Investor Housekeeping.

Many of your clients are partnering with you for the long-term. But after years or decades of investing, the paperwork they originally completed might be out of date. Do some practical housekeeping by reviewing third-party authorizations and entitlements with your investors to be sure that the authorizations for all their funds are current and complete.

Resolution #6: Build Two-Way Vendor Relationships.

When you work with a third-party provider, it is natural and appropriate to view the relationship in terms of, “What can this provider do for me?” But there is the flip side to be considered as well: “What can I do for this provider?” Engaging in two-way communication can build a business-vendor relationship with enhanced benefits to both parties. For example, suppose you discover a certain weakness in your system. Sharing that information with your security vendor gives the vendor the opportunity to be responsive and strengthen their offerings and, consequently, enhance your security profile.

Resolution #7: Train Staff Constantly.

With cyber threats growing in their sophistication, keeping your staff aware and alert to potential risks is vital. Rather than treating security training as a “check the box” type of activity, create a strategy that will provide regular and ongoing training for your employees (including your top executives). This doesn’t have to be complicated: regular memos, practical examples, friendly reminders, security videos, etc. can all play a role in keeping awareness – and compliance – high.

Resolution #8: Identify Your Top Three Challenges.

The new year will contain tremendous opportunities – but it will also confront you with challenges. Now, while the slate is clean, take the time to identify the top three challenges, issues, or risks that you could potentially face in the upcoming twelve months. Then, develop proactive strategies to deal with them. For example, how would you address a disruptive market event? Do you have sufficient plans in place to mitigate key man risk? Are your investor relations where you want them to be, or do you need to make your investor servicing more robust?

Resolution #9: Maintain a Culture of Compliance.

Policies and procedures are your friends. Compliance protocols mitigate risks and assure your investors that you are rigorously protecting their assets. But remember: culture is established from the top and works its way down. If you want to maintain a culture of compliance, be sure that all your executives and leaders are champions of compliance, demonstrating adherence to corporate policies and procedures in every action, every day.

Resolution #10: Don’t Wait.

Finally, don’t wait. If you see an IT need, address it now. Put simply, “Ask early; ask often.” If you wait, your IT budget will become progressively depleted and the opportunities to fix problems will become fewer. So if you need to shore up security: don’t wait. Do it now. If you need to improve data management: don’t wait. Do it now. If you need to streamline back office operations: don’t wait. Do it now. Don’t wait for something to go wrong or to become an emergency. Do it now.

There, you have your New Year’s Resolutions. Now it’s time to take action and execute them…here’s to your success in 2017!

Why Investors Are The New Regulators Of Alts

By Bob Goldbaum, SVP Product & Market Strategy, Backstop Solutions Group

You thought the U.S. Securities & Exchange Commission (SEC) was tough on the private investment industry? Wait until you meet the new regulators. You know them already. You do business with them every day. The new regulators are the investors – your Limited Partners (LPs) – you seek as clients.

In recent years, the SEC has been more closely scrutinizing the private investment industry. Whether or not they will continue to do so is up for debate. But it is a moot point, because the SEC’s laser gaze has had an unintended (but not unexpected) consequence: along with operational failures and fraudsters, it has motivated institutional investors to demand for themselves a new degree of transparency from the managers they invest with.

We’re not talking about portfolio transparency. As an alternative investment firm, you probably frequently debate the right to keep your intellectual property – your positions and trades – confidential.  Investors are focusing on and demanding operational transparency. Put simply, they want to know that that you are running a tight ship before they invest their capital. This makes investors the ultimate regulators, because if they don’t like what they see, they won’t invest. The net result for managers is to comply or risk eventual shutdown due to a lack of investment capital.

Many institutional investors  have dedicated Operational Due Diligence (ODD) teams to evaluate the organizational quality of alternative investment firms. These ODD teams may be composed of internal experts or external consultants (outsourcing is a very common practice for LPs). The Due Diligence Questionnaire (DDQ) is usually the first level of inquiry used by ODD teams, followed by more detailed probes into a manager’s operations and third party vendors.

ODD teams are now more rigorously scrutinizing matters such as:

  • The nature of and adherence to operational policies and procedures
  • Compliance procedures and mock audit results
  • Oversight of and accountability for all aspects of daily operations, regardless of whether tasks are performed in-house or through a vendor
  • End-to-end cash management practices
  • Fee and expense allocation guidelines
  • Regulatory compliance within any country where funds are sold
  • Employment, compensation, and incentive practices
  • Cyber security

It’s critical to remember that Investment Due Diligence (IDD) teams might vet a strategy, see that it is generating an attractive alpha, and want to invest – but they usually can be vetoed by the ODD team. The ODD team is looking for red flags on the operational side of the business. A red – or even a yellow – flag can be enough for the ODD team to nix the potential investment as too risky for the investor.

Should the fact that investors are taking on the role of the new regulators cause concern for you? Not if your operations are of institutional quality. There’s really no reason not to disclose as much as possible about your operations to potential or current investors. The real question is, how well equipped are you to answer these new institutional demands and requirements of their ODD teams?

You may think  that you have the best overall investor services operations in the world and use the top service providers, but if you don’t have centralized client and account information in industry-specific systems that also help with compliance efforts, an ODD team might recommend against investing with you.

It’s time to move beyond the spreadsheets and generic software that cause unwanted complexity and confusion to a data repository and reporting system specifically built for the private investment space. A system that can help you capture operational data quickly and provide the organizational transparency that accredited investors and their authorized, interested parties want. If you have anything less, your next investor-driven ODD effort might not generate the results you are looking for, harming your chances of raising and retaining capital.

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The Outlook For 2017: What Are Alternative Investment Professionals Expecting?

The best way to understand the outlook for alternative investments in the coming year is to ask the industry’s most respected professionals. Our November 3, 2016 industry event in New York City provided an exceptional opportunity to do just that.

During the event, we surveyed both alternative investment allocators and managers to gather data that would enable us to assess their expectations of the opportunities and challenges 2017 will present. Here’s a brief overview of what we learned (full results are in our free infographic, which you can download here).

Respondents – the group included a wide range of firm types, with Hedge Funds constituting slightly over one-third of all surveyed.

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The biggest challenges 2017 will present – Market conditions topped the list, with operational efficiencies drawing a very close second.

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The outlook for 2017 returns – Private Equity firms held the most positive outlook for their 2017 returns, while Funds of Funds firms were more neutral.

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The pace of hedge fund redemptions – When asked whether they believed hedge fund redemptions would continue at the current pace in 2017, survey participants largely answered “Yes.”

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Outsourcing functions – While half of participants do not outsource any functions, of those who do, nearly 68% are managers. Only 15% of allocator firms outsourced one or more functions.

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You’ll find more detailed results in the full infographic, such as the answer to, “Which function is outsourced most often by alternative investment industry firms?” Download  your free copy of the infographic.

If you have questions, or would like any additional information, please contact us at your convenience.

It’s Holiday Season! Let’s All Get Ready for Extreme Spear Phishing

By Michael Neuman, VP of Information Security, Backstop Solutions Group

The holiday season is wonderful and stressful, happy and hectic, all at the same time. With everyone’s adrenaline pumping to get year-end activities finalized at work and preparations completed at home, the stage is set for one more (unwelcome) holiday surprise … extreme spear phishing.

Spear phishing hackers target specific individuals with carefully crafted emails in an attempt to defraud monies, gain system access, or introduce malware or ransomware. Hackers know that vulnerability is high during the holidays because people are feeling pressure from every side. Additionally, executives may be absent from the office, making them less accessible to approve decisions or transactions. For these reasons, the U.S. Computer Emergency Readiness Team (CERT), part of the Department of Homeland Security, has issued warnings for the past three years to stay alert for phishing and malware campaigns during the holidays.

Extreme Spear Phishing Techniques

Spear phishing is getting ultra-sophisticated. Consider these techniques hackers are currently using:

  • The Portrait Ploy. Emails can be made to look legitimate by including not just an accurate signature block, but even a picture of the supposed sender pulled from Microsoft Active Directory or Outlook. With an executive’s or manager’s portrait onscreen, recipients are more likely to respond without questioning the email’s origin.
  • The Forwarding Fake-out. The hacker will send an email to an executive who is traveling. In many cases, the harried executive will simply forward the email on with a quick “Please take care of this for me” note. The recipient sees the note from the executive and handles the matter without thinking to verify where the original email came from.
  • The Spelling Scam. When you right-click on an email address, it will tell you where the email came from. An email supposedly from a company executive but sporting a Yahoo or Gmail address would raise an immediate red flag. So hackers have upped the ante. Now, the spear phishing email address might show a domain name that is close to the company’s real domain name. For example, instead of name@backstopsolutions.com, it might read name@backstopsolution.com. People don’t often notice a one-letter difference because they see what they expect to see.
  • The Travel Trap. Here, hackers take advantage of executives who are traveling for business. They send an email that looks like a legitimate travel invoice, and request prompt payment. All too often, the fraudulent invoice is paid without question.
  • The Rush Ruse. Hackers count on the fact that employees are rushing to close out year-end books, get in the last sales of the quarter, pay outstanding invoices, etc. So they send out emails marked “ASAP” to already overflowing inboxes, knowing that if an email is tagged with urgency, most employees will respond to it automatically.
  • The Code Caper. People tend to immediately open documents or click on links that appear to come from a legitimate source. Hackers leverage this in spear phishing by hiding malware or ransomware code in the documents or on spoofed websites. That way, even if the recipient subsequently realizes that the request is not valid, the damage has already been done.

Avoiding the Barbs of Extreme Spear Phishing

To avoid the barbs of extreme spear phishing, be sure to alert your employees – from the C-suite on down – to do the following every day, but especially around the holidays:

  • Hone your spidey sense. Beware of emails that are overly vague around billing, shipping, payment, or activity requests. Also be suspicious of requests marked “haste,” “rush,” or “urgent.”
  • Take a REALLY good look at email addresses. Right-click on email addresses and read them carefully to determine legitimacy.
  • Verify suspect emails out of band. If you get a suspicious email request, don’t reply to it. Instead, pick up the phone and call the apparent sender to verify the request, or send a fresh email directly to the sender.
  • Think before you click. Pull back on that trigger finger! Check the email address and consider the request before opening any form of attachment or clicking on any link.

Hackers never take holidays, unfortunately, so you need to be on the alert to ensure that your company is not compromised during this festive time of year. Remember, a happy holiday season is one where there are only good surprises!

Operational Excellence Is Within Your Grasp

Agility is where it’s at – for all companies, in all industries, at all times. That includes the world of alternative investment firms, where agility is all about organizing the flow of information that attracts, manages, and retains capital. To achieve such agility, alternative investment firms need to practice operational excellence.

Operational excellence is a nice thought, but the reality is often (let’s be honest) quite the opposite. For example, have you ever …

  • Needed days (rather than minutes or hours) to answer an unexpected inquiry about a fund’s performance?
  • Been unable to give a satisfactory explanation to an irate investor as to how her fees were calculated?
  • Had long delays produce tranche-level balances and liquidity dates for an investor seeking to redeem?

We get it. We know the issues. You are juggling an ever-increasing number of products, each with unique closing schedules and currencies, creative fee terms, complex liquidity terms, and distinctive income allocation methods. To say that operational excellence is a challenge in such a complex environment is an understatement!

The problem looms even greater because you may not have a great way of tracking, managing, and performing calculations on all this information. If you are like most firms in your field, you have either:

  • Built a unique spreadsheet for each fund, noting key persons and technology risks, OR
  • Outsourced all accounting to one or more administrators.

However, Excel was never designed to be a partnership allocation platform or a liquidity forecasting platform for hedge funds, private equity funds, or funds of funds. You lose control with spreadsheets because you are asking them to deliver the impossible. Ouch.

And as for outsourcing – well, the very word “outsourcing” implies a loss of control. Outsourcing creates a blind dependence on an administrator … one who has implemented their own version of your firm’s legal documents, without giving you the ability to validate the numbers. Double ouch.

It’s time to get rid of the “ouch” and take back the ownership. Regaining control of your data will put you on the road to operational excellence. Ultimately, a centralized system that can handle everything – full general ledger accounting, tranche-level liquidity, fund closings, partnership allocations … the whole works – is the best solution and the one that will ensure that you have the agility to support a culture of continuous improvement, addressing business, market, and fund variations that are as yet unimagined.

But in the meantime, there are three steps you can begin taking today that will move you toward operational excellence:

  1. If your firm employs an outside administrator, take ownership of your numbers by driving how the providers set up each product, and by verifying – on an ongoing basis – that the calculations are correct.
  2. If your firm maintains hundreds of Excel spreadsheets for in-house numbers tracking, initiate getting out of Excel!
  3. If you use general ledger accounting packages like QuickBooks, remember that they cannot be expected to solve complex problems. While general ledger accounting is a prerequisite for portfolio and partnership accounting, it’s not sufficient for an alternative investment firm’s requirements.

For more information, download the full white paper How Can Alternative Investment Firms Attain Greater Business Agility? By Aiming For Operational Excellence.

4 Data Management Best Practices For Creating Actionable Information for Agile Operations

At our recent Backstop Connect event in New York City on November 3, 2016, more than 110 attendees gained valuable insights into how alternative investment firms can effectively manage an ever-increasing amount of data. Our event included training workshops, a keynote speech from our CEO, Clint Coghill, to launch our new agility initiative, and of course, cocktails.

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In addition to learning about data management best practices, our attendees  also had the chance to network over cocktails.

The industry discussion portion of the event was led by Michael Siminoff, Founder and CEO of Madrone Software and Analytics, and our own Bob Goldbaum, SVP, Product and Market Strategy here at Backstop. During their presentation, Michael and Bob shared 4 data management best practices for the Alternative Investment Industry to spur more agile operations.

The challenge and potential of more data.

Alternative investment industry professionals are finding themselves facing increasing amounts of data. Consequently, they’re seeking more effective ways to centralize and utilize that data to make investment decisions. While the growth of data holds great potential, it also presents challenges, such as how to curate that data to provide actionable insights. As Michael explained, “While [the] financial services [industry] is not into ‘big data’ yet, they are certainly into complex data.”

These 4 data management best practices can help alt professionals move toward their goals of greater business agility:

  • Create ACTUAL data. Data in paragraphs can’t be analyzed or sorted or manipulated as easily. Put this data into fields, and also use time series data to look at trends.
  • Use STANDARDS. Data can’t mean different things to different people. Standards should be agreed upon, and those agreements must be upheld by everyone to reduce future normalization efforts.
  • CENTRALIZE data. Putting data into a central database with relational links reduces redundancy and aids in reporting.
  • Adopt PUSH automation. Set automated alerts within the system so that insights can be “pushed” to stakeholders. Push automation will help reduce the time it takes for constituents to mine data for insights, and ensure those insights get to the right people at the right time.

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Why does data management matter?

Superior data management translates to superior performance by increasing an organization’s agility, enabling it to respond to internal and external forces, while remaining focused on generating exceptional results.

In the ever-changing world of alternative investments, responding quickly to new developments, adapt to changing regulations, and manage increasing risks is vital. Alternative investment firms that implement agile data management practices can respond to those dynamics faster, while maximizing efficiency.

For additional information on data management best practices for the alternative investment industry, please contact Backstop at your convenience.