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Are Hedge Funds Still Black Boxes?
When Christophe Frerebeau first started working on Fundspire (a fresh startup for the hedge fund industry) in 2009, he found that most hedge funds were still considered to be “black boxes.”
What a difference three years can make. Frerebeau believes that most managers understand that they should provide a certain level of reporting to their investors. “That makes quantitative analysis more and more relevant,” he said, adding that his company is used by hedge fund managers to “efficiently provide quality reports to their client as well as interactive web-based reporting.”
“From both the investor and manager point of view, it is sometimes better to receive or provide interactive and flexible reports rather than a lengthy list of metrics,” Frerebeau explained.
“The idea first came from [Fundspire co-founder] Carlos Garcia, working in a multi-family office exclusively investing in hedge funds. He was so frustrated with the existing software in the industry that almost every time I met with him, he would tell me about his frustration and he would mention I should start a company to provide a better solution for hedge fund investors.”
After bringing up the idea on multiple occasions, Frerebeau – who previously served as a consultant at Accenture – said that he started to realize that Garcia was serious about starting a company. “I asked another friend of mine, Nicolas Brice, who was then the Director of Research of a multi-billion dollar fund of hedge funds, what he thought of the idea,” said Frerebeau. “Nicolas was very enthusiastic about it and shortly after that, we started Fundspire.”
When asked why the cloud is so important to the future of the hedge funds, Frerebeau said that he sees the shift toward cloud-based services as “another step of out-sourcing business or personal services.”
“The technology landscape is quickly becoming more diverse and more complex everyday,” he said. “Using cloud-based systems is a great way to tackle this complexity with ready-to-use business services at a lower cost.
“No old-fashioned desktop software can provide you with services that are constantly updated to address the latest innovation, regulation or business challenges. [But] the appropriate cloud-based solution can definitely provide them.”
Ultimately, Frerebeau said that investing in hedge funds is all about the trust established with the manager, as well as its strategy.
“As you consider an investment or as you monitor an investment made, slicing and dicing the strategy of a manager can give you insight on how the facts relate to the story the manager tells,” said Frerebeau. “At Fundspire, we believe any type of quantitative analytic should be available quickly, easily and accurately in order for an analyst to be able to look at all the facets of a hedge fund strategy. This helps an analyst ask the right questions and, over time, add another layer of trust with managers.”
Unfortunately, Frerebeau said that most of the tools that exist on the market first focus on the analytic capabilities, “which often makes them cumbersome.”
“Because of that, many professional investors have decided to stick to more traditional methods (i.e., Excel),” he said. “Depending on the user, these methods can be quite sophisticated but they are often error-prone and time-consuming when it comes to adapting them to a wide range of hedge fund strategies.”
Frerebeau said that Fundspire’s goal “has always been to deliver world-class analytics in a very intuitive way to ensure high user adoption.”
“We have made a great effort in offering vast calculations in order to avoid an analyst from overlooking an aspect because a calculation was too complex to perform,” he said.
Looking ahead, Frerebeau said that his company is working hard to improve its platform while bringing innovation “to a space that has been stagnant for too long.”
“I can’t tell you much more about them, but you will definitely hear about them in the coming months,” said Frerebeau.
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