The hedge fund industry is in the midst of a period of significant change driven by the pressure of both regulators and investors. Regulators are now requiring hedge funds to provide more transparency into their risk and control function by asking them to demonstrate if they could provide valuation services in-house, in case the fund administrator went bust. Investors are also becoming sophisticated, demanding more information on the valuation, liquidity and exposures of the hedge funds in order to assess potential risk factors.
To generate alpha, long/short equity strategies are no longer adequate and hedge funds are now relying on multi-asset strategies, which require them to operate at the highest level in terms of people, process and technology. Technology is not only an enabler for driving performance, but a critical factor for operating a multi-asset hedge fund. Technology by itself is no longer a differentiator; if it’s not there it simply will be impossible to run the business successfully. In its place it is vital to have the appropriate systems so hedge fund managers can remain in control of the diverse risks undertaken and demonstrate that they can react to the poorest situations.
To fully understand the state of software use within hedge funds, Dr Sven Kuenzel and Anika Schlien at the University of Greenwich Business School, in collaboration with Copia Digital, conducted a study to assess current and future trends. Questionnaires were forwarded to 556 hedge fund executives and the study analyses the following key issues in order to create a comprehensive understanding of the industry’s decision making when it comes to technology: