Fund managers find way to keep tabs on investors

By Svea Herbst-Bayliss

BOSTON (Reuters) - For hedge fund managers yearning to know which clients will come or go, Ron Kashden may have developed the next best thing to a crystal ball.

Years ago when loosely regulated hedge funds delivered top returns, most managers gave little thought to who was investing with them. They knew clients personally and the line to get into these portfolios was long and growing longer.

But all that changed recently when returns fell sharply and competition for institutional investors heated up. Now managers worry their business could sink if investors ask for their money back all at once.

Enter Kashden and his 6-person software company TKS Solutions to help.

As an accountant turned computer programmer who earned his stripes as head of software development at $15 billion hedge fund SAC Capital Advisors, the 44-year old developed a program to analyze a fund's investor base and detect patterns.

"This program could, for example, help a manager determine that pension funds from a certain part of the country are very patient and won't leave until there is a double digit loss," Kashden said in an interview.

"That kind of information can be very useful to a manager in terms of marketing and let him decide he wants more of one type of investor and less of another."

So far Ramius Capital, an $11 billion hedge fund, and Tiedemann Investment Group are early users, paying thousands of dollars each month for the program called Penny.

Named for a former colleague's demands that things be calculated down to the last penny, the program has morphed from tallying "boring stuff" such as managers' fees to delivering real business intelligence, Kashden said.

Acknowledging few accountants can write complex computer programs, Kashden said he was inspired to do this because he was "tired of doing everything manually on spread sheets."

"This is a way to really look at your capital base and investigate how much capital might leave in the event something happens," he said.

And the program's roll-out earlier this year could not have come at a better time for the $2 trillion hedge fund industry, where assets have doubled in three years, but investors are suddenly rethinking their commitments, industry analysts said.

Even though hedge funds tend to lock up investments for months and even years, a wave of requests for money back can wreak havoc for a fund when managers have to sell often illiquid securities to meet redemptions.

But Kashden's program can provide some guidance from the start, he said. It can figure out whether investors tend to move in packs and whether, perhaps, European investors might move one way, while Asian investors move another way.

After seeing the program, fund managers expressed a combination of relief and surprise, Kashden said.