How hedge funds are embracing the new technology driven reality.

18th May 2021 by Brielle Hewitt

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Here’s our key takeaways from the KPMG/ AIMA Global Hedge Fund Survey 2021.

In recent months, we have written extensively about the need for firms to adapt. From a technological, cultural and sometimes procedural standpoint, we have warned of the need to make changes in order to both overcome some existing vulnerabilities in the investment sector, but also to be equipped to thrive in the radically new world we find ourselves in following the pandemic. 

Our perspective comes from what we see from working in and with the industry, as well as our intuitions about the way technology and culture are changing. It can be intimidating to take a stand on issues, so it was a great comfort to see much of what we have discussed being reflected in the most recent KPMG/AIMA Global Hedge Fund Survey. The overwhelming importance of finding ways to thrive in the new environment are neatly encapsulated by the survey’s title: Agile and Resilient: Alternative Investments Embrace The New Reality. 

One of the overarching takeaways was the fact that, despite what the heads of some major investment banks might say, some form of remote working is likely to continue. Many have found the shift to a remote-first approach more effective than previously expected, with staff appreciating their newfound flexibility. Those that look to completely unwind that shift once the pandemic ends will quickly find themselves wrongfooted by firms that are willing to adapt. 

This is reflected in the data.

The most striking statistic uncovered in the survey was that 80% of managers say they are now investing more into improving their firm’s technological infrastructure and capabilities.

Meanwhile, 55% cited concerns over diminished team building and dilution of culture as one of their top challenges following the shift to remote work. 

Technology: the race to adapt 

Often it takes a big shakeup to force people to open their eyes, reevaluate stale processes and really improve their capabilities. With 80% of managers increasing their technology investment, we can clearly see that happening in the hedge fund space.  

Unsurprisingly, some of the key concerns managers were trying to use technology to fix were in direct response to the new working environment. We have written in the past about the challenges and opportunities that remote working presents from a compliance perspective.

This was echoed in the survey, with almost a fifth of managers naming ‘decentralised supervision’ as one of their two main challenges. 

Note: if this is your firm, we will be more than happy to help. Get in contact with me, Sean Morgan – sean@fingeprint-supervision.com to discuss how we can help with your firms supervision technology.

However, not all of these technology investments are intended to adapt to remote working. Many are also looking at ways to improve their capabilities in areas like data analysis and reporting. Indeed, one in three are looking to build a central data warehouse for this very reason.  

This speaks to another sector wide challenge: margin compression. Even before the pandemic, firms were being asked to do more with less, and technology offers a way to do that. Now 29% of firms with more than $1bn under management say they are investing in technology to improve their efficiency in response to squeezed margins.  

Of course, one of the challenges with technology is how fast it develops, making it very hard to stay up-to-date with the latest capabilities. It would be easy to conclude from the number of managers increasing their investments that the industry is an enthusiastic user of technology, but the concerns raised about the levels of adoption in the City of London’s recent RegTech report point in the opposite direction.  

Culture: keeping the firm’s soul alive  

We’ve touched on the benefits many employees have enjoyed in the current environment, namely improved flexibility and time for family. These are huge advantages, but the physical separation of teams has introduced challenges around how to build and maintain your firm’s culture.   

‘Culture’ is sometimes viewed as a fluffy term, with little quantifiable output or benefit, but the last year has shown the reality of the situation: firms with strong culture and shared values find it easier to adapt in times of upheaval, whereas those without quickly find themselves fighting fires on multiple fronts.  

Compliance can be a moving target at the best of times, with new approaches for misconduct emerging continually. Add a hybrid workforce into the mix and it is unsurprising that 38% of managers cited the “need for greater compliance in a decentralised environment” as a key compliance concern. 

This is evident from the FCA’s increasing focus on ‘tone from within’. In a decentralised workforce it becomes difficult if not impossible to rule by decree. We view compliance as downstream of culture, where a robust, shared set of values obviates the need for a combative approach. A strong culture has everybody in the firm pursuing the same goal, a weak culture leads to an endless game of cat-and-mouse. 

Of course, the changing world of work presents an opportunity as much as a challenge here. Many in the industry will feel that their firm’s culture could use some improvement, and remote working presents the same threats to bad cultures as it does to good ones: there has never been a better time to embrace the need for change and build back better. 

Both technology and culture point to a wider overarching goal: that of adaptability. Whether you are looking at the best ways to futureproof your firm technologically or instil a compliance-focused culture, the ultimate goal is to render your firm better able to adapt when changes come. This lesson will remain just as true as the pandemic recedes and life begins to look more normal again. The firms that thrive will be that ones that remember to prize this spirit of adaptability even when the need appears less pressing.

We are here to help and support the Hedge Fund industry, with a strong background and experience in technology implementation within the HF world. Speak to me, Sean Morgan (sean@fingperint-supervision.com) or one of the team: +44(0)203 011 4145,  to find out how we can support with improving supervision processes and outcomes for your firm with our technology platform, Fingerprint Supervision.

Till next time,

Sean


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