The investment management sector is undergoing transformative changes as a result of new economic and geopolitical challenges. New regulations have added operational complexities, leading to an unprecedented wave of change for investment managers. Advanced technologies such as machine learning, AI, and data science are reshaping the industry, compelling investment managers to adapt. These technological advancements are fundamentally altering the industry landscape, requiring firms to re-evaluate their investment strategies and how they attract investors.
This Quantifi survey was conducted at an emerging managers’ event hosted by Hedgeweek in New York City, gathered insights from over 150 participants. While emerging hedge funds may face challenges in establishing themselves, they also have opportunities to differentiate themselves and grow. By effectively navigating these challenges and capitalising on emerging trends, these funds can carve out a niche in the competitive world of hedge fund management.
Which factors do you consider most when constructing and managing your portfolio?
When constructing and managing a portfolio, many factors come into consideration. According to the survey results, risk-adjusted returns was considered the most important factor (83%). By considering risk-adjusted returns, investors can compare investments with varying levels of risk and make informed decisions that align with their risk tolerance and investment goals. This helps achieve a balance between potential gains and the associated risks, leading to more effective portfolio management. By leveraging advanced analytics and models, investors can quantify and manage risk more accurately, leading to better decision-making and improved portfolio performance.
Active risk management was selected by 33% of respondents. The objective of investment managers is to generate alpha, and through the active management of risk, they can optimise the balance between risk and return, thus improving the overall performance of the portfolio. Active risk management is key to maintaining stability, maximising returns, and achieving long-term success.
What are the top 2 technology priorities for your firm?
The top technology priority was implementing data analytic tools (83%). These tools are essential for investment managers due to the increasingly complex and data-driven nature of the financial markets. The most sophisticated tools, such as those provided by Quantifi, enable portfolio managers to analyse vast amounts of data, identify patterns, and make informed investment decisions. By leveraging advanced algorithms and data science technology, firms can uncover valuable insights, detect market trends, and optimise trading strategies. The right tools facilitate risk management by monitoring portfolio performance, assessing market volatility, and identifying potential risks. With the ability to process and interpret data quickly and accurately, firms can respond faster to changes in the market and make smarter in investment decisions.
The other three options saw the same number of responses (17%). Investment managers are constantly exploring avenues to maximise returns, optimise operations, and gain investor confidence. As investment funds expand and adapt, the importance of robust and efficient Portfolio/Order Management Systems (PMS/OMS) becomes increasingly apparent. Careful evaluation of functionality, scalability, integration capabilities, and support is essential when deciding on a solution that aligns with the fund’s strategies and growth plans. Quantifi’s whitepaper Navigating the PMS/OMS Maze: A Buyer’s Guide explores the key factors to consider so you can select the right solution.
How do you assess and manage risk?
Investment managers employ rigorous strategies for assessing and managing risks. Through thorough analysis and advanced models, such as those provided by Quantifi, firms can evaluate market volatility, market, credit and liquidity risk, and potential disruptions. Diversification across asset classes and careful selection of investments are also employed to mitigate risks.
When assessing and managing risks, a combination of quantitative models and risk analytics is a priority, and this is reflected 67% of responses. By leveraging quantitative models, firms can effectively value their risks, enabling a better comparison and prioritisation of different risks. Risk analytics, on the other hand, complements these models by providing a deeper understanding of the underlying data and facilitating the identification of complex risk relationships.
Employing hedging strategies and risk mitigation techniques, selected by 33% of the respondents, is a proactive approach to minimise potential losses, protect their portfolios from market downturns, and enhance risk-adjusted returns. By employing these techniques, they aim to reduce volatility, manage downside risks, and capitalise on opportunities across different market conditions while safeguarding investor capital.
What are the top 3 factors when selecting an PMS/OMS?
Investment management firms consistently strive to enhance alpha generation and expand assets under management. As funds grow and adapt, having a robust and efficient PMS/OMS becomes a priority. Regardless of whether firms are a startup fund or seeking to upgrade their current solution, the selection of a PMS/OMS holds significant importance as it can profoundly influence the firm’s operations and overall success.
The survey responses indicate that real-time monitoring and reporting tools (50%) is a key factor for respondents when selecting a PMS/OMS, indicating a strong preference for accurate and up-to-date reporting capabilities. These tools are essential for investment managers to be effective as they enable timely decision-making, effective risk management, performance evaluation, and operational efficiency. These tools play a crucial role in ensuring the success and competitiveness of investment managers.
Other factors mentioned in the survey include the system’s ability to handle large trading volumes and complex investment strategies (33%), indicating the importance of scalability and robustness. Customisable workflows and automation features (33%) were another key factor, emphasizing the need to tailor the system to individual requirements for efficient operations. Additionally, the speed and ease of integration (33%), underscores the significance of seamless integration with other systems to ensure smooth data flow and minimise disruptions.
What is your expectation regarding trading and risk IT expenditure in the next 12 months?
Increased pressure on investment managers has made it ever more important for their time to be spent effectively and on alpha generation and capital raising. However, the technology requirements, especially in a complex and highly regulated environment with multiple asset classes, can become a source of distraction. As firms reassess their trading and risk systems, the case for an external technology partner who can offer an advanced, reliable, and adaptable solution becomes increasingly relevant. Quantifi has a well-established history of providing advanced and user-friendly solutions that improve clients’ risk management approaches, minimize operational expenses, and enhance business agility.
All the respondents expect an increase in trading and risk IT expenditure over the next 12 months. A third of respondents anticipate an increase of 50% or more. With everyone looking for the slightest competitive edge, Quantifi has recently seen firms including the use of new technology innovation, such as data science, as a key part of their business-decision making process.
The present economic challenges have altered the landscape of technology investments in the banking and investment services sector this year. Instead of reducing IT budgets, firms are now allocating greater resources towards technologies that yield substantial business benefits. Specifically, there is a shift in software expenditure, moving away from internal development and towards purchasing solutions that deliver quicker returns on investments.
According to Gartner, worldwide banking and investment services IT spending is forecast to total $652.1 billion in 2023, an increase of 8.1% from 2022. Spending on software will see the largest growth with an increase of 13.5% in 2023.