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Digital Subscriptions > The Hedge Fund Journal > Issue 109 - November 2015 > The Evolving Dynamics of the Hedge Fund Industry

The Evolving Dynamics of the Hedge Fund Industry

Technology investments and middle office outsourcing


Top-line revenues remain under attack in the form of fee concessions and a permanent departure from the “2 and 20” industry model. Further, trade economics are being pinched in the form of increased financing costs, taking a further bite out of the revenues of a manager. Last, the costs of the business are certainly not declining, creating a dramatic squeeze on the margins that a manager yields. This has caused the AUM break-even point to exponentially increase compared to earlier days in the hedge fund industry’s life cycle. In 2015, an asset base of $500 million is often a minimum amount required to support the costs to run an increasingly complex business. So what does it take to be successful and profitable?

Managers need to be more focused than ever on the financial considerations of running an effective business. That means understanding the implications of a lower revenue environment while being cognizant of ways in which the operating infrastructure can be optimised to gain efficiencies and also the impact that successful investments, particularly in technology, can have on the business. Investments in technology can help integrate front to back office reporting capabilities, leading to more timely and less manually intensive exercises. Additionally, while back office outsourcing is near a saturation point, the middle office offerings from various participants have become quite robust and customised to the asset management community. Leveraging these solutions is a cost-effective alternative for managers who would rather have their personnel focusing on other core activities.

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INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.