The role of the chief operating officer at hedge fund boutiques has changed significantly over the past decade. For Mette Østerbye Vejen, Chief Executive Officer of Danish fixed-income boutique CABA Capital, the evolution is particularly visible in the growing demands around regulation, governance and investor reporting. As the firm has expanded its investor base beyond Denmark and the Nordics, these demands have increased, while its lean structure means new requirements must be absorbed without simply adding headcount.
“I believe the role of a COO has changed more than people outside the industry probably realize,” says Østerbye, who co-founded CABA Capital around a decade ago. “Ten years ago, the position was largely about keeping the back-office running. That’s still part of it, but today the COO is a key partner in risk management and governance processes too.”
“I believe the role of a COO has changed more than people outside the industry probably realize.”
Mette Østerbye Vejen, Chief Executive Officer at CABA Capital.
The shift has been driven in large part by the expanding regulatory framework governing alternative investment managers. Requirements covering AIFMD, MiFID II, AML, ESG and sustainability disclosures have added layers of interpretation and implementation to what was traditionally a more administrative role. “A huge part of the role now involves interpreting what these rules actually mean for our funds and operations, and making sure that the requirements are implemented correctly in the traditional back-office processes,” Østerbye explains.
“The regulatory and compliance burden has grown substantially, and it’s not slowing down.”
Mette Østerbye Vejen, Chief Executive Officer at CABA Capital.
For a small boutique, the challenge is not simply understanding new regulation but finding the resources to implement it. “The regulatory and compliance burden has grown substantially, and it’s not slowing down,” she says, joking about politicians’ “sweet-talking and ambitions to reduce burdens.”
Managing regulation with a lean team
CABA Capital’s operating model provides some relief. The boutique works with a licensed AIFM between CABA Capital and its alternative funds, meaning much of the formal regulatory responsibility sits with the AIFM. “This business model means that most of the regulatory burden lies with the AIFMs,” Østerbye says. But that does not remove the need for CABA’s own team to understand and engage with the regulatory framework. “This partnership also requires us to spend a lot of time digging into the matter ourselves.”
With a lean team, every additional reporting requirement or disclosure standard creates a resource question. “Every new reporting requirement or disclosure standard means finding ways to absorb the work without simply adding headcount,” she says. “That can be quite a challenge and take valuable time away from other tasks.”
“Every new reporting requirement or disclosure standard means finding ways to absorb the work without simply adding headcount.”
Mette Østerbye Vejen, Chief Executive Officer at CABA Capital.
The same dynamic applies to investor servicing. CABA Capital has expanded its international outreach, particularly around its Flex series of leveraged, closed-end fixed-income strategies, which seek to capture structural spread premiums in Scandinavian covered bonds through a three-year maturity structure. As the investor base has broadened, so too have the operational demands surrounding fundraising and client relationships.
“We are expanding internationally, and therefore I spend more time on investor communication now – conferences, due diligence questionnaires, ad hoc requests, follow-up calls and meetings,” Østerbye says. “Currently, policy and regulatory interpretation take up more of my calendar than they did five years ago.”
Customization adds another layer
A growing investor base and expanding range of Flex funds have also increased demand for tailored reporting. CABA Capital has responded by developing the ability to customize reporting for individual investors. “In my opinion, that’s just part of the game and our license to operate – so no complaining here,” Østerbye says. “Having said that, customization means that we need to be disciplined and structured when it comes to format and data.”
For Østerbye, the answer is not necessarily to add more resources, but to improve the underlying processes. “There is always room for improvement, and I think the scope for making the processes more efficient lies with us more than anything else.”
Automation and AI
Automation has already played a role in reducing the operational workload at CABA Capital, particularly around the trading process. “Automation has streamlined the operational side of the trading process, which has freed up time for higher-value work for the CIO, Carsten Bach, and the investment team,” emphasizes Østerbye. “They worked really hard on it, but it certainly pays off.”
“Automation has streamlined the operational side of the trading process, which has freed up time for higher-value work for the CIO, Carsten Bach, and the investment team.”
Mette Østerbye Vejen, Chief Executive Officer at CABA Capital.
The firm is also exploring how AI could support document-heavy regulatory work. One area of experimentation is using AI to compare new and old legislation and directives as part of gap analysis. “We are experimenting with using AI for gap analysis between new and old Acts and Directives,” Østerbye explains. “It’s a way of quickly understanding the changes in regulation. We still need to read the Acts and Directives, but it helps us to zoom in on the pain points.”
For all its potential, however, Østerbye sees AI as a supporting tool rather than a substitute for professional judgement. “The caveat is that we still need to check the output – we can’t outsource judgement to AI.”
The settlement process remains manual
Not every operational challenge can be solved through internal automation. One area Østerbye believes has significant room for improvement is the settlement process for purchasing units in funds that are not listed on an exchange. “The subscription and subsequent settlement process in our Luxembourg funds is quite manual, and I believe there is huge potential to improve it through, for example, tokenization,” she says. For Østerbye, the next step in the evolution of fund operations is therefore not simply about managing a growing regulatory burden, but using technology to make the underlying infrastructure more efficient.
