In this President's Letter, Jeff speaks to the CTOs of the Hedge Fund community about their technology models.
President, JB Homer Associates
Technology Models That Are Shaping the Hedge Fund Industry
As Hedge Funds are experiencing some level of asset decline in 2016, it is making for an interesting and challenging time in this industry as we move through 2017.
Technology continues to be a tool that Hedge Funds are utilizing in an attempt to deliver a more efficient and cost-effective operating model. These firms expect technology to have an impact on their industry's competitiveness consequently, investing in more robust technology and data optimization is critical.
In speaking with a number of Hedge Fund industry CTOs during the course of JB Homer's recent IT leadership searches, we uncovered some of the reasons leading to increased technology investments, and some of the different technology models currently in place:
- Increases in technology-related costs are being driven in part by the development and integration of platforms and tools for key operational areas such as Investment Management & Trading, Fund Accounting, and Sales & Marketing, as well as Cyber Security, and the outsourcing of IT platforms (i.e. to Charles River, Eze, Geneva), and IT Infrastructure.
An integrated set of technologies helps allow for more timely and customized Client Service, Investor, Risk Management, Compliance and Regulatory reporting capabilities, thus investments in Data Management and Business Intelligence/Analytics are necessary. Data needs to be aggregated from all areas of the business and extracted logically and seamlessly from a central Data Warehouse to provide these reporting metrics and dashboards to the business stakeholders and external investors.
- Larger Hedge Funds often have already made significant investments in building the necessary IT platforms and tools to run their business and this model is classified as self-administered. Then there is a model more in the middle where there's a mix of in-house development and outsourcing. In this model, firms may utilize a third party administrator, but also develop shadow IT models to allow better internal control of the vendor code, yet still have the option to outsource.
Small and mid-sized Hedge Funds tend to lean heavily toward a best-in-class, commercial-off-the-shelf technology model. They may have not yet built out their own systems or IT teams, so they can benefit from utilizing the services of outsourced providers, though they may find themselves beholden to the vendor's code with no internal controls.
Which technology models do you feel can offer
Hedge Funds a competitive advantage?