Everyone in the hedge fund industry agrees on the need for agility to be able to maneuver businesses in and out of opportunities and the need to scale, once a business has identified a winning business formula. It is increasingly apparent that it is easier and cost-effective to scale technology rather than increase resources. Of the three inputs necessary to run a business, people, processes and technology, technology is the one that delivers the most scale.
Since 2008, it has been a well-known fact in the financial industry that the firms which leveraged robust technology platforms, had a better view on their risk profiles and were more successful navigating market volatility vs. those which did not. Additionally, in this age of data and identity theft, businesses need superior technology to armor themselves with strong safeguards against cyber threats. Furthermore, as the value and volume of data grow, technology becomes paramount.
However, too many CEOs, owners and COOs view technology as either a necessary evil, expensive or unreliable. These same CEOs, owners and COOs also want to create an institutional business model that is repeatable and scalable. Data from key industry trends points to technology and more importantly, technologists, being the critical components in creating this agility and scale.
- There are highly divergent views on the strategic impact of technology on portfolio management and business operations among industry experts. It ranges from 30% to 85% among the 263 hedge funds over $1B in AUM. This wide variance makes clear that the value of technology is not yet established and leveraged throughout the industry, and that it is imperative for hedge funds to do so.
- The number of technology options available to a firm are increasing dramatically for all functions. With OMS or accounting engines, funds now are faced with many options, including those which package multiple systems into a single platform. This abundance of options underscores the need for a technologist to choose the best solution, or combination of solutions for a particular firm.
- The rate of change is growing in data management and reporting needs as well as innovation in technology. This boom creates a large array of options and tools for hedge funds in newer areas such as data mining, research gathering, sentiment mining and front to back office platforms. More than ever, firms need a technologist to act as an expert in selecting and predicting which new and future tools will be the best to create agility and scale.
The change and innovation in technology is growing significantly and mobility, big data and cloud computing have changed the way professionals work. Pre 2008, most firms had their internal systems or vendor solutions handling functions such as OMS, risk management, trading, reporting and accounting, with large teams and budgets to do so. Now, many new launches as well as larger established funds are going toward a model of partnering with one or two key providers and a fund administrator to handle all their front, middle and back office functions. Some of the choices include Blackrock’s Aladdin® for a full front to back platform, The Gravitas Platform for front and middle office, and DE Shaw and Blackstone’s Arcesium for middle and back office. Irrespective of the solution, firms have many options to create scale leveraging world class technology platforms and more than ever before, need great technologists to leverage them.
So what does this mean for you? Hug your CTOs!