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2017 Global Hedge Fund and Investor Survey

How will you embrace innovation to illuminate competitive advantages?



Executive summary

Robotics. Big data. Artificial intelligence. Blockchain. Just five short years ago, and most would say even more recently, few would have uttered any of these words in the same breath as “hedge fund.” Whether viewed as innovation or evolution, the hedge fund industry has joined with the vast majority of the world in acknowledging the advent of, and the need to embrace, these business-altering technologies.

Technology-driven disruption is changing financial services organizations enterprise wide. Today, it’s not about having a digital strategy — it’s about defining your business strategy in a digital world. Disruptive innovation will touch every aspect of our lives. It is the future of business, and the world. The accelerated pace at which everything is changing means that the industry has to look at things differently and think in new ways. The industry must ask – how do we ensure we exist tomorrow? How do we streamline and automate our operations? How do we come up with new ideas and modernize our business model? The industry must become more agile, to anticipate and manage shifting investor demands, embrace convergence across asset classes and seize opportunities as they present themselves both within traditional financial services and beyond.

As you turn the pages of this, our 11th annual Global Hedge Fund and Investor Survey, ‘How will you embrace innovation to illuminate competitive advantages?’, we hope the observations help contribute to an ongoing and healthy dialogue that promotes the continued development and advancement of the global alternative fund industry. We would first like to express our gratitude to those managers and investors who provided viewpoints into the direction and development of this survey, as well as offer our thanks and appreciation to the more than 100 managers and 55 investors who gave their time and insight to provide such robust results. We believe that this combination of perspectives provides invaluable observations — both commonalities and differences — that continue to drive and shape our industry.

Key observations

This year, we continue the dialogue around some of the important trends we’ve identified in prior surveys; talent management and the evolving operating model remain at the forefront. But our 2017 survey also brings into sharp focus a variety of new and interesting themes, a few of which are briefly highlighted here. During the survey process, managers and investors were asked to comment on innovation and its impact on changing strategic priorities, the use of big data as a differentiator in the front-office, capital raising, expenses and nontraditional fee structures, disruptive technologies and evolving operating models.

Strategic priorities

Disruption is sweeping through every industry at an unprecedented pace and hedge funds and the broader asset management industry is among those caught up in this wave. As is always the case, with change comes risk as well as opportunity. Technological advancements are enhancing managers’ capabilities while also creating competition, not just from other managers, but from the broader alternative asset management community. In an already competitive environment, managers’ fundraising abilities continue to be challenged as well. And as investors become increasingly sophisticated, they’re also raising the bar on the expectations they place on investment managers. To break through these barriers, managers are reacting to increased pressure by proactively looking for innovative solutions that help to differentiate them from the competition. What is most apparent is that those who do not innovate and evolve will be left behind. In this Darwinian environment, one in which we’ve seen large fund closures in this past year, it is encouraging to note that managers have an awareness and positive outlook about the need to change course, and the majority of managers are embracing innovation in at least one area of their business.

The evolving front office

For managers looking to distinguish themselves in a crowded field, one area where they can readily make observable innovations is in the front office. Today, managers of all strategies, even those deploying deep fundamental research, are tapping into technology such as AI or machine learning to complement their investment process. Aided by the proliferation and availability of huge amounts of data, managers now have the tools available to extrapolate and evaluate this information and draw strategic conclusions, significantly enhancing their ability to create a distinctive advantage in their quest to deliver alpha.

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About The Hedge Fund Journal

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.