Some of the most senior men and women in the global hedge fund industry have put forward their collective vision of the hedge fund firm of the future in a major new report published by the Alternative Investment Management Association (AIMA).
The paper, ‘Perspectives: Industry Leaders on the Future of the Hedge Fund Industry’, is sponsored by Aberdeen Standard Investments (ASI), the global investment company, and is based on candid and wide-ranging conversations with 25 of the leading figures in the industry, who collectively account for over 300 years of industry leadership and manage in excess of USD500 billion in hedge fund assets.
The paper finds that hedge fund firms are rapidly transforming their product offerings and how they operate in order to meet the changing needs of investors. These changes include adopting artificial intelligence and other disruptive technologies and partnering with clients on responsible investment mandates.
Larger firms are increasingly becoming fully diversified asset managers with multiple product offerings at varying fee levels. The paper also highlights how many firms are changing themselves internally, with a growing number of managers becoming more data-focused, relying more on teams of highly quantitative talent such as physicists or engineers and less on one or two ‘star’ traders.
The interviewees also discuss, among other themes, fees; succession planning; employee diversity; and “alpha”, “smart beta” and “alternative beta” based client solutions.
AIMA’s CEO, Jack Inglis (pictured), says: “This paper shows that the pace of change and innovation in the hedge fund industry is only going to increase. Hedge fund firms are transforming themselves in order to thrive in tomorrow’s market place. Hedge fund firms have always embraced disruption; the leaders with whom we spoke are committed to making the most of the coming changes in the financial world and are enthusiastic about the opportunities to deliver for their clients.”
AIMA’s Global Head of Research, Tom Kehoe, the author of the paper, adds: “The hedge fund industry was born of disruption. The leaders with whom we spoke were not only confident in their ability to adapt to the changes that they face, but are at the forefront of this transformation. From the implementation of new investment solutions to the implementation of cutting edge technology to stay ahead of the pack, hedge fund firms are meeting the challenge. In the coming years, hedge fund firms will continue to refine not just what they deliver to their investors, but how they deliver it.”
Aberdeen Standard Investments’ Global Head of Client Driven & Multi-Manager Solutions, Andrew McCaffery, one of the participants in the paper, says: “The paper demonstrates the growing voice of the client. This is reflected in the range of products and the solutions that are required from, and provided by, hedge funds plus the recognition of the value for money demanded in delivering the solutions. It also shows the fundamentally Darwinian nature of the hedge fund industry whereby the firms which adapt to clients’ needs and grasp technological change will thrive.”