Case studies
Hutchinson Lilley Investments
Background
Hutchinson Lilley Investments Ltd (HLI) is a boutique investment firm founded in 2000 by Robert Hutchinson and Ian Lilley. The company occupies an unusual position on the investment spectrum between traditional fund managers and hedge funds, and manages balanced and highly risk-controlled portfolios diversified across regions and asset classes. Clients include high net worth investors, family offices, charities, trusts and private banks. At March 2011, HLI has three UCITS absolute return products, with assets under management of £100 million.
Challenge
Having started out with offshore hedge funds, HLI migrated to UCITS funds in 2004. The short-term nature of hedge fund investors and the fact that many were only willing to commit capital to larger new funds (i.e. assets greater than $100 million) made the UCITS approach appealing. “With our experience in absolute return products, we had identified a gap in the market where we felt confident we could make an impact,” recalls HLI co-founder and CFO, Ian Lilley.
“Pre-trade compliance is a must,” states Lilley. “Not least because of the complexity of investment restrictions imposed under UCITS, but because the investment restrictions don’t lie at a particular level. Instead they vary from applying to a single instrument or certain type of instrument, to the aggregate of investments in certain types of instruments.
“When it came to technology, we wanted a cost-effective solution that could handle any asset class (long or short), and would be able to interface with third-party systems, such as data feeds, prime brokers, and administrators,” says Lilley.
Solution
Having found an early stage investor, HLI established its UCITS funds in Luxembourg, with the portfolio management system supplied by Tradar in 2000 acting as HLI’s principal tool for maintaining accurate books and records for its funds.
Results
Tradar has been instrumental in supporting HLI’s evolving business. “When you are a small business, you never know exactly how it will progress. We set up in 2000 expecting to run long/short equity hedge funds and now, 11 years later, we run sophisticated UCITS funds and a number of segregated accounts for high net worth individuals. The Tradar system has lent itself well to servicing a very wide range of different mandates investing in different instruments.”
HLI uses Insight to handle complex OTC instruments and run its cash ledger. “We’ve been running for 11 years trading in absolutely every asset class globally and haven’t found an instrument yet that Tradar can’t handle. The platform also maintains the cash ledger very effectively for our portfolios. Obviously, we have to reconcile the cash balances on a daily basis. It’s the most effective check that any fund manager can carry out, given that almost any item that’s going to have an impact on your portfolio is going to go through the cash account.”
Lilley also stresses the importance of having an independent and consolidated set of books and records in being able to monitor and reconcile the activity and positions of the custodian and other service providers, as well as to demonstrate compliance with UCITS rules. “Tradar makes it easier because it handles any asset class long or short, as well as multi-currencies. If you don’t have accurate books and records, then your P&L is meaningless. That’s the starting point for any house like ours, and indeed, for any investment company.”
With pre- and post-trade compliance the next major undertaking for HLI’s Insight platform, the company is also looking to employ it as a front-end dealing system. Once this is in place, it means HLI will significantly reduce the risk of error, since a transaction will be entered only once into Insight, sent to Bloomberg EMSX for execution and returned via FIX, and the entire process reconciled in HLI’s Books and Records. “In terms of functionality, there are not many systems on the market that offer full straight through processing with a complete audit trail, like Insight,” concludes Lilley.