Are we there yet? Digital Transformation for Hedge Funds
Every family road trip turns into the same question: “Are we there yet?” Conversations about digital transformation at hedge funds can feel similar. Everyone wants to know when they will get there.
But many firms might not like the answer. There is no destination. Instead of arriving, firms evolve, often in small, continuous steps. Transformation represents a new operating model with evolution as a feature. Core data readiness determines whether hedge funds will achieve that operational change.
It feels like we never “get there” because market infrastructure keeps moving the bar. A better way to think about transformation success is through the ability to achieve necessary outcomes, powered by one living source of truth that feeds financing, NAV, cash, and investor reporting, every day.
As hedge funds contemplate where they are on this journey, there are a couple of key areas that can serve as a litmus test for digital transformation “arrival.”
Prime financing: price leverage with the view your lenders use
Prime financing is an early test for digital transformation. Financing, collateral, and settlement cycles quickly penalize data gaps through higher margin requirements, tighter cutoffs, and slower access to liquidity. Unified data keeps financing aligned with real positions rather than distortions in costs and cutoffs caused by reconciliation noise and timing gaps.
The Bank for International Settlements (BIS) describes this hedge fund–prime broker relationship as a two-way channel.i The financing channel reacts faster than most “transformation” programs. When dealer balance sheets tighten, the impact flows quickly into hedge-fund financing terms. Margin requirements rise, collateral rules get stricter, and borrowing capacity shrinks. When hedge funds must adjust exposures or post collateral abruptly, that pressure moves back into prime-broker balance sheets.
That velocity exposes where fragmented data slows decisions and forces funds to carry wider liquidity buffers. But a unified approach aggregates exposure across cash, swaps, and options; tracks margin drivers and collateral eligibility; and shows which collateral is already used by the prime and which can be pulled back. Armed with that view, PMs can see financing effects before they trade, while treasury stages liquidity for realistic spikes.
Regulators and industry bodies are reinforcing this reality. The Bank of England has named prime-brokerage transparency and counterparty leverage a front-line operational risk.ii At the same time, AIMA has formalized deeper and more frequent prime-broker due diligence requirements in its revised Guide to Sound Practices.iii
ODD-to-NAV: trust follows the lineage
Operational due diligence (ODD) points back to one question: Can the numbers investors see (NAV, performance, reports) be traced back to the book of record? When allocators ask about operating risk, they want to understand how a number on the limited partner (LP) statement traces back through the ledger to the transaction and the valuation input.
Without saying so explicitly, investors are looking for the outcomes of digital transformation. AIMA’s Due Diligence Questionnaires and the SBAI’s 2024 ODD survey both highlight the same pressure points: governance, reconciliations, cyber controls, service-provider oversight, and reporting lineage.iv
They want to see that a single, accurate data set drives the reporting process, not a hodge-podge of extracts and spreadsheets. During diligence, a brief “lineage walkthrough” may emphasize tracing two or three investor-relevant items. Done well, the walkthrough builds confidence without theatrics. It also surfaces small control gaps early, when fixes cost little.
With one golden source of truth, administrators, valuation committees, and auditors align on the same underlying reality, which shrinks manual adjustments and shortens the path from activity to NAV to investor reporting. The process clarifies whether a firm has effectively transformed its data foundations or is still juggling manual workarounds.
The same pattern repeats in settlement timing and liquidity usage. Wherever the cycle tightens, whether through T+1 or margin call windows, transformation is theory. Having one set of real positions driving every downstream action is practice.
Leverage and liquidity: measure them the way creditors assess you
The conversation around leverage may seem like an internal operational discipline, but it also functions as another test of digital transformation. Leverage is often described with a single ratio — but that number only captures a fraction of the story. Creditors and central counterparty clearing houses (CCPs) focus on something much broader: exposure, collateral eligibility, liquidity windows, and the actual timing of margin calls. They evaluate hedge funds based on the real mechanics of exposure, collateral eligibility, margin requirements, and settlement timing.
In 2024, the International Organization of Securities Commissions (IOSCO)v and the U.K.’s Financial Stability Board (FSB)vi made this explicit by calling for risk-based leverage measurements and stronger preparedness for collateral and margin calls across both centrally and bilaterally cleared.
That kind of view only works when exposure, collateral, and cash sit in a unified data layer. It aggregates positions across cash and derivatives, applies realistic haircuts, links eligibility to custody, and maps liquid resources by currency to settlement and margin windows. When that foundation exists, liquidity buffers stay appropriate and de-leveraging becomes a decision, not a reaction.
A weekly liquidity ladder can help, with the requisite data in place, by stacking same-day, T+1, and T+2 resources by currency against known settlements and expected margin calls. If buffers thin, portfolio conversations shift earlier. If buffers thicken, treasury can redeploy idle cash with confidence. The process reveals whether data drives the operating model or whether teams still rely on manual analysis.
What “there” looks like
Every fund differs in strategy, counterparties, and operating choices. Even so, patterns emerge. The list below describes signals resilient managers often exhibit, leaving room for firm-specific approaches.
- One source of data drives positions, cash, and reference data across OMS, PMS, risk, treasury, and investor reporting
- Post-trade processes run to the clock (same-day allocation and affirmation feel routine, and exceptions surface in real time)
- Financing decisions reflect a consolidated view of exposure and margin across all primes and synthetics
- ODD/LP review includes a repeatable lineage demo (statement → NAV → ledger) as standard practice
- Liquidity ladders reflect real positions and settlement windows, and feed into portfolio and treasury decisions
Digital transformation is credible only when the operation handles real constraints. It shows up when the clock forces same-day decisions, when a financing pack reaches the investment committee, and when a diligence walkthrough clearly traces the path from ledger to LP statement.
In that sense, there is no finish line. Transformation is the discipline of running the firm so that financing pressure, investor scrutiny, and liquidity demands continually sharpen the data that supports them.
Rather than asking “Are we there yet?” the more useful question is whether each pressure point and connection with stakeholders and partners tightens the core operating foundation.
Authored By
Ramachandran Chidambaram
Ram is a Senior Vice President of Product Management at Arcesium. He leads the India-based product management teams responsible for the Aquata platform, the Financial Data Stack, Treasury, and Reconciliation capabilities on the Opterra platform, and the overall Opterra platform experience. He is an engineer-turned product manager with close to two decades of experience in the investments industry.
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[i] BIS, “The prime broker–hedge fund nexus: recent evolution and implications for bank risks.” Quarterly Review (Mar 2024). https://www.bis.org/publ/qtrpdf/r_qt2403y.htm
[ii] Bank of England, Rebecca Jackson speech on prime brokerage, July 2025 Financial Stability Report. https://www.bankofengland.co.uk/speech/2025/january/rebecca-jackson-speech-at-uk-finance-prime-brokerage
[iii] AIMA, “Due Diligence Questionnaires: Guide to Sound Practices for Selecting and Periodically Assessing Prime Brokers,” Jan 2025. https://www.aima.org/sound-practices/due-diligence-questionnaires.html
[iv] SBAI, “Operational Due Diligence Practices Survey 2024.” https://www.sbai.org/static/f03d5f7c-d906-44c2-95e68b62fdec57f6/SBAI-2024-Operational-Due-Diligence-Practices-Survey.pdf
[v] IOSCO, “Principles for the Valuation of Collective Investment Schemes; Recommendations for a Framework Assessing Leverage in Investment Funds.” https://www.iosco.org/library/pubdocs/pdf/IOSCOPD413.pdf
[iv] FSB, “Liquidity Preparedness for Margin and Collateral Calls,” Dec 2024. https://www.fsb.org/2024/12/liquidity-preparedness-for-margin-and-collateral-calls-final-report/
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