BNY Mellon Alternative Investment Services has launched a global service that independently validates a hedge fund's position records to third parties -- prime brokers, custodians, trustees and agent banks -- and verifies the pricing of that fund's securities.
While price reconciliation has always been one of the firm's core offerings, says a spokeswoman, it has only now started providing clients with combined asset validation and price verification.
"The events of 2008 and early 2009 prompted our clients to ask about whether we could offer these kinds of services," she adds. "Demand has come from both hedge funds and their advisors, including from Asian clients who've wanted another set of eyes or additional checks on a current provider."
The new service provides fund managers and their investors with greater transparency and additional assurance that fund assets are independently priced and validated, says BNY Mellon. The firm says the offering covers 50 asset classes and is enabled by its extensive relationships with more than 150 prime brokers and counterparties.
The service can be used to supplement client interface with accountants and independent auditors and can be tailored to meet specific requirements, including tolerance checking across positions, price or market values.
Hedge fund managers agree there is demand for such an offering. While he does not feel his firm would use it at present, Adrian Dunn, chief executive of Bangkok-based Brooker Capital, says: "I am sure there is a decent-sized market out there for such a service, as it effectively cuts across the potential issues faced by investors in larger funds holding complex hybrid portfolios with perhaps multiple prime broker service providers.
"I would imagine that that presents some concerns in terms of consistency of valuation, let alone where there is perceived to be a genuine potential for fraud," he adds.
However, Brooker Capital makes all its investments in public equity, with no hard-to-price assets. "With leading banks as prime broker, custodian and fund administrator," adds Dunn, "there is pretty much no part of the valuation of our portfolio that is actually left to us in any case, and no part which is not completely transparent already."
Currently, the BNY Mellon service reconciles more than 27,000 client investment positions, with a total market value of over $24 billion. Client coverage rates -- assets validated as a percentage of total portfolio scope and value -- are in the range of 95-99%. Clients can run the service on a monthly or quarterly basis.
BNY Mellon Alternative Investment Services has around $200 billion in assets under administration and is part of the Bank of New York Mellon Corporation.
Edward Russell also contributed to this story.