29 Sep 2011
A prime finance survey from Citi forecasts that hedge funds will spend $2.09 billion on information technology during 2011 covering hardware, software, data and IT personnel. The prime broker said this is the equivalent to about nine basis points of total hedge fund industry assets under management.
Citi noted that small hedge funds charge nearly all their IT expense to their management company. But as managers grow, more of the expense begins to be charged at the fund level with the largest hedge funds charging 20-30% of the costs back to the fund.
The survey found that the threshold at which hedge funds will choose to buy versus build their desired software has shifted extensively in recent years as better solutions come to market. It also noted that hedge funds are focusing custom development work on risk management applications and on data management platforms that help with compliance and investment decision-making tools.
Citi found that a new, third wave of hedge fund technology investment is beginning to form as managers contracting with specialty consultants to build unified data management platforms that consolidate the fund’s reporting capabilities across formerly disparate functions. These emerging platforms provide hedge funds the flexibility they require to address evolving investor transparency and regulatory compliance demands. They also provide opportunities to create robust investment decision support tools that help managers focus on their alpha creation.
Sandy Kaul, US Head of Business Advisory Services of Citi Prime Finance said there is a “huge tipping point” at the $3-5 billion AUM level. Firms with below $3 billion in AUM spend on average about $900,000 annually, but $3.1 million when the AUM is greater than $3 billion but less than $5 billion. Above $5 billion, the IT spend increases but at a slower proportionate rate, to $7.9 million annually.
The survey collected data from 75 hedge funds. Among them, 53 gave full data responses, while 22 gave partial responses.
Citi noted that small hedge funds charge nearly all their IT expense to their management company. But as managers grow, more of the expense begins to be charged at the fund level with the largest hedge funds charging 20-30% of the costs back to the fund.
The survey found that the threshold at which hedge funds will choose to buy versus build their desired software has shifted extensively in recent years as better solutions come to market. It also noted that hedge funds are focusing custom development work on risk management applications and on data management platforms that help with compliance and investment decision-making tools.
Citi found that a new, third wave of hedge fund technology investment is beginning to form as managers contracting with specialty consultants to build unified data management platforms that consolidate the fund’s reporting capabilities across formerly disparate functions. These emerging platforms provide hedge funds the flexibility they require to address evolving investor transparency and regulatory compliance demands. They also provide opportunities to create robust investment decision support tools that help managers focus on their alpha creation.
Sandy Kaul, US Head of Business Advisory Services of Citi Prime Finance said there is a “huge tipping point” at the $3-5 billion AUM level. Firms with below $3 billion in AUM spend on average about $900,000 annually, but $3.1 million when the AUM is greater than $3 billion but less than $5 billion. Above $5 billion, the IT spend increases but at a slower proportionate rate, to $7.9 million annually.
The survey collected data from 75 hedge funds. Among them, 53 gave full data responses, while 22 gave partial responses.
