They say the more things change, the more they stay the same. Turns out it’s a pretty accurate assessment of the hedge fund industry then and now.
You see, back in 2011 we hosted a “State of the Hedge Fund Industry” event that yielded some interesting trends and perspectives, and we thought it might be fun to not only look back at those trends, but compare them to what we’re seeing in today’s industry – more than five years later.
Like I said: the more things change, the more they stay the same.
Hedge Fund Market Trends & Challenges
THEN (2011): It’s been an interesting year thus far for hedge funds and other alternative investment firms, as inflows have been high but performance low. In addition to performance challenges, hedge funds continue to deal with increased competition for investments, and thus asset-raising remains a hurdle for many funds – regardless of their size or strategy.
Similar to 2010, this year has brought an influx of new hedge fund start-ups, though many are smaller than typically seen in previous years. Managed account structures are gaining popularity. New strategies are being utilized, such as emerging markets or quant funds, but long/short equity remains the most popular strategy among new launches.
NOW (2017): The current hedge fund climate is not entirely unlike what it was back in 2011. There’s still stiff competition for investments, and firms big and small face significant capital raising challenges. 2016, in particular, was a challenging year for the industry, with outflows crossing the $100B mark. Another major trend difference today? The downturn in hedge fund startups. There’s been a fairly noticeable decline in launches, particularly since 2014, and with the market experiencing a significant amount of unrest, that downward trend isn’t expected to change.
Hedge Fund Regulations
THEN: One of the biggest challenges facing hedge funds today is the uncertainty surrounding regulations such as Dodd-Frank. The SEC has extended the deadline for hedge fund registration until March 30, 2012, but many firms are unsure of the specific requirements they must meet.
In addition to increasing legal requirements, investors are also demanding a lot from hedge fund managers today. In terms of technology, investors want to see disaster recovery and business continuity plans in place in order to ensure there are adequate backup plans if something goes wrong.
The role of the technology service provider is changing accordingly with these new investor requirements. IT providers are not just keeping the lights on anymore. Drawings and spreadsheets are no longer sufficient to present to investors. These days, service providers are being pulled directly into investor due diligence meetings to explain the intricacies of a hedge fund’s technology infrastructure.
NOW: One of the biggest challenges facing hedge funds today is the uncertainty surrounding regulations. Sound familiar? Except this time, the expectation is that Dodd-Frank will be pulled back by the Trump administration and there will be other noteworthy changes to regulations on Wall Street.
Investors demands have only increased over the course of the last 5+ years, and today’s investment management firms are grappling with transparency, reporting and infrastructure expectations that continue to evolve. Particularly when it comes to cyber security, investment managers are facing tough questions during due diligence meetings and regulatory examinations.
Cloud Computing & Hedge Fund Technology Trends
THEN: By far the biggest trend in the hedge fund technology space today is cloud computing. Although the technology itself has been around for some time, hedge fund managers and investors alike are now embracing the cloud, and its prevalence is being seen throughout the industry. Education is the key when it comes to the cloud. Fund managers should educate themselves about the benefits and challenges – even something as seemingly simple as the distinction between public and private clouds.
Expectations are that the cloud is not just a passing trend but a significant wave that will continue to gain popularity throughout the hedge fund industry, particularly given its cost benefits and proclivity for flexibility and scalability.
NOW: Well, it turns out we were on point back in 2011 when we predicated the cloud was not merely a passing trend. Hedge fund cloud services continue to grow in popularity, and nowadays can offer a wide range of features and functionalities to satisfy even the most suspicious adopters.
Security in the cloud is one of today’s biggest technology trends, and we see regulators and investors pushing investment managers to implement (internally) and verify (externally) sound security measures and infrastructure layers to protect sensitive assets from compromise.