Hedge funds are boosting spending on risk management as concerns about navigating regulatory challenges increases, new global research by Beacon Platform Inc shows.
Almost all (99 per cent) of the hedge fund executives questioned in Beacon’s study in the US, UK, Germany, Switzerland, France, Italy, Sweden, Norway, and Asia say their fund will increase spending on risk management over the next two years.
More than half (56 per cent) of the executives, whose funds are responsible for a collective USD901 billion assets under management, say spending on risk management will rise by 20 per cent or more, the study by Beacon, the open and cross-asset portfolio analytics and risk management platform for hedge funds, found.
The majority are concerned about their ability to navigate regulatory challenges – around 56 per cent say that will become harder over the next three years although 39 per cent expect the pressure to ease. C-level executives were almost twice as likely to think that regulatory challenges would become harder (73 per cent) than their Investment Analyst or Portfolio Management colleagues (38 per cent).
Transparency was identified as a major issue in the study – around 90 per cent questioned admit transparency provided to clients and investors has to improve with 23 per cent saying it has to improve dramatically.
Regulators are seen as the main drivers behind greater data transparency although industry trade bodies and hedge funds themselves are also pushing for increased transparency.
The research found hedge funds are generally happy with their risk management systems but identified some areas of concern. Around a third (33 per cent) said their fund’s systems were only average for latency – the ability to get complex calculations within an acceptable time frame – and 30 per cent said it was only average for accuracy (the ability to mark to market and use industry standard models for all products) with 5 per cent saying its was poor.
Around a fifth (22 per cent) said their systems were only average for transparency, with 6 per cent saying it was poor or very poor. More than a quarter (26 per cent) said their systems were average for flexibility, with 2 per cent saying it was poor. More than four out of five (82 per cent) who rate their system as poor plan to replace it in the next 12 months, while 65 per cent will use more systems to compensate for their system’s weakness.
Investment in systems has paid off for funds doing it – around 55 per cent who say visibility of risk at their fund has improved over the past two years attribute that to greater investment in technology, while 47 per cent attribute improvements to greater use of specialised third parties.
Asset Tarabayev, Chief Product Officer at Beacon Platform Inc says: “As regulatory challenges increase and clients demand greater transparency, our research shows that hedge funds are gearing up to respond to these concerns. Spending is expected to grow across the sector as funds look to leverage the advanced reporting features of modern risk management and portfolio analysis systems to improve transparency for investors and regulators alike. Technology-leading funds are already benefiting from these advanced technical capabilities, increasing the transparency of analytic models, accelerating their time to compliance, and delivering real-time views of risk limits and exposures.”
