The new rules, whose introduction was delayed for a year because of the pandemic, could hardly have come at a more difficult time for hedge fund managers. “A lot of hedge funds’ returns over the past few years have been lower than expected due to volatile markets,” he says. “They have had to fight very hard to outperform passive investments that are available to investors through ETFs in particular. They can’t afford for any cost drag on their portfolio performance.” As a result, hedge funds have been much more focused on costs than previously. That means asset managers are under enormous pressure to find ways to meet the new requirements in a cost-effective way. “That focus on cost within the hedge fund world is something that we see much more than 5 or 10 years ago, when returns were a bit easier to come by,” he says.Ĭassini, whose clients include BlackRock and many other big asset managers, offers an outsourced solution to help hedge fund managers comply with the new rules, which cover the margin requirements for non-centrally cleared derivatives including fixed income, equities, credit and commodities derivative trades. “Cassini offers margin analytics that provide transparency on the types of margin the buy side are being charged, either from their prime brokers under UMR, or from clearing brokers as well,” he says. “With these margin calculations, clients are able to see the cost of margin before they trade. We give them a real time ability to see what their post-trade costs are going to be.” As a trader, I can say: ‘What would be the implications of executing this trade in terms of my margin requirements’. Griffiths says UMR is fuelling demand for increasingly sophisticated tools which portfolio managers use to optimise portfolios and allow them analyse them in new ways. “The move into UMR has made people look at their portfolios in a different way,” he says. And because of UMR they’re going to have to perform some optimisation analytics to make sure that they keep their costs low.” “They know they have now got large margin requirements when they didn’t before. He continues: “We have optimisation algorithms that use machine learning. They will take a client portfolio, and propose a set of trade moves to optimise the cost associated with those positions. Maybe you move 10 trades from one counterparty to another. If you did that, this would reduce your costs by this amount.” Maybe you moved 1000 trades from one counterparty to another. Griffiths says that many of the Phase 6 firms are not sufficiently well advanced in their preparations for UMR. Hedge funds that have not yet prepared for the new rules need to act fast. If they fail to comply in time, they could be in for a nasty shock.
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