Time for small Hedge Funds to rethink Spreadsheets

October 12th, 2009
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By Giles Thomas, Managing Director, Resolver Systems --- The suitability of spreadsheet tools such as Microsoft Excel for hedge funds often attracts attention but Resolver Systems believes there is a more fundamental difficulty involved. The basic structure of smaller funds, especially start-ups, leaves them inherently open to difficulties when using spreadsheets with limited functionality.

It goes like this. Many hedge funds are breakaways from larger businesses. Traders see an opportunity and establish their own funds, perhaps with back-up staff to support them through administrative tasks. These traders do not have the resources (or company IT support) to use specialist enterprise-level software, so they build their portfolio tracking and analysis systems using lower-level personal spreadsheet programs.

This approach is fine in principle but when a trader is building convoluted interlinked formulae to track trades, analyse positions, and then separately list everything out for compliance purposes, s/he is carrying out a series of complex and repetitive tasks, adding in new rows and lines to populate the spreadsheet. We've seen setups where people had to change six different spreadsheets every time they made a trade. Mistakes are more than possible, they are inevitable - and these can be catastrophic for profitability and for regulatory reasons.

There are a number of products available to start-up hedge funds but few of them offer the flexibility to manage these transactions or the programmability to automate processes the way the fund's founders want them. Or to provide, in a well-worn phrase, a ‘single version of the truth’.

Small start-up hedge funds should not be constrained by spreadsheets with limited functionality or excluded by the excessive cost of enterprise-level software. They deserve a ‘third way’ where spreadsheet programmability meets simplicity and repeatability. Funds can thus offer clients new services backed up by robust software processes: the safety net that their entrepreneurship and dynamism sorely needs in a regulation-heavy world.

Giles Thomas is Managing Director of Resolver Systems, a software development firm. For more information on Mr. Thomas and Resolver Systems, please click here.

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