Rising interest in hedge fund-like mutual funds among advisors and investors have driven service providers and fund managers alike to adjust their businesses to account for legal and tax ramifications of serving and operating alternative mutual funds.

Executives gathered last week at the Investment Company Intitute's 2012 Tax and Accounting Conference in Orlando to talk about best practices for dealing with these complex products. Money Management Executive spoke with Terry Gallagher, Executive Vice President at UMB Fund Services and moderator of the Operational Challenges Affecting the Treasurer's Office panel, which included Joseph Kauten, treasurer, Waddell & Reed and Ivy Funds, Dave Longhurst, treasurer, Dodge & Cox Funds, Amy Olmert, managing director, Legg Mason and Jay Oprins, chief financial officer, Jackson National Asset Management, about how firms are looking to address issues surrounding complex products.

So what did the discussion center on?

A lot of our panel's discussion was focused on the increasing complexity of products, as derivatives become more commonplace in the portfolios. All of the panel members have created internal complex securities teams made up of people from accounting, admin, legal, compliance, tax, risk and even portfolio managers that get involved in product design and understanding the investments. UMB Fund Services, as a service provider, tries to partner with the advisor to help them better design the product they would like to offer.

Panel members also discussed the need to get involved and communicate among all areas of the firm. Everybody needs to be involved in the process, not just one group.

The panel also talked about risk management and about working closely with the compliance office and the risk group. For a long time, people have struggled with the difference between risk and compliance. And from the standpoint of the other panelists who represent their own fund groups, the risk side is involved in both portfolio analysis and policies and procedures.

We also spent some time talking about structure and the different ways that departments are set up. Some firms are set up functionally, with separate financial reporting, corporate action, and expense management teams. At UMB Fund Services we have our fund accountants and fund administrators work with funds on all aspects of the fund.

Our panel also talked about the limitations of these different structures, and how those with compartmentalized functions try to create opportunities for their associates to get involved in different projects or move between teams so they get a better understanding of the broader picture of everyone's responsibilities.