Increased demand for data is impacting how hedge fund managers think about their data ecosystem, according to Jonathan White, Global Head of Fund Sales, Intertrust Group.
“How they build around data ecosystems to provide for flexibility in everything that they do from a day-to-day perspective, so data can impact the front office, portfolio management, risk management, those alpha-centric operational pieces,” White told Traders Magazine.
New research commissioned by Intertrust Group explored how hedge fund chief financial officers expect investor reporting trends to shift over the next five years and how this could impact the shape of their business.
“Part of the interesting component of this survey is what is creating complexity in the CFO office. And to them the data aspect is more around their interaction with their investors, the need for data around compliance, the growing need for data sets related to ESG,” White said.
The operating models of hedge fund managers are different regionally, according to White.
In North America, hedge fund managers tend to have their own in-house books and records, “they have their own positions and cash data in house”, he said. Meanwhile, in Europe, hedge funds tend to rely predominantly on their fund administrator for that books and records data.
According to a survey, with investor reporting demands expected to rise exponentially, almost two-thirds (65%) of CFOs anticipate having to expand their technology framework over the coming five years, while almost as many (60%) will scale up their in-house finance team.
Almost four-in-ten (38%) said they will outsource more functions while a quarter (26%) will retain their existing balance between outsourcing and insourcing.
“We’ve seen a trend – a step towards outsourcing core functions, so that the business itself can focus on investment management and the data itself, and obviously facilitate those data requests,” White commented.
“For the majority of the conversations that we have, it’s not necessarily a current point-in-time decrease of operational costs. It’s something that is put in place to increase the scalability and operational efficiency over time and in the future,” he added.
From a data perspective, White said that hedge fund managers are looking for partners to take the burden of developing the systems and functionality that is required to generate that data.
“In many respects, it’s about removing the heavy lift of some of the day-on-day tasks from their organization, whether it be leveraging a firm like us, whether it be going to a fund administrators and asking them to do more and then building a team around data itself,” he said.
“When they invest in technology, it’s around market data / portfolio data versus being around operations,” he added.
White was intrigued by responses in the survey around embracing distributed ledger technology, blockchain: “The industry wants to continue to explore. The promise of what blockchain can bring to financial services still hasn’t actually been realized yet. But it’s a game changer. And I think as we think towards the future, data is the commodity the managers are going to be focused on.”
He added that in addition, investors are driving the ESG conversation, so hedge fund managers are going to continue to focus around these data elements.
“Also, they’re going to continue to identify activities internally that don’t add value to the book of business,” he said.
“I think the more agile managers, that are really embracing technology and focus on data ecosystems, are the ones that are really going to flourish,” White stressed.
“You have to basically pursue it to know that you’re going to be relevant five years from now,” he said.