Home News AIMA/KPMG – Global Hedge Fund Industry: Accelerating out of the pandemic

AIMA/KPMG – Global Hedge Fund Industry: Accelerating out of the pandemic

by wrich gbaf

Hedge Fund industry strategically poised to accelerate out of the pandemic, product innovation and more tailored investor products top of mind 

  • 49% of hedge funds have complemented their traditional investment strategies with private markets or other new products or strategies
  • The Investor relations function within hedge funds continues to grow in prominence with one third of all respondents expanding their investor teams.
  • 79% of respondents are moving to some form of permanent hybrid working, although many have reservations about their new models

The hedge fund industry’s next chapter will be driven by the insights ascertained by hedge funds during the pandemic around the capabilities of its people and its technologies, its important relationship with investors, as well as its unique cultures, according to new findings from AIMA and KPMG. These lessons allowed the industry to strategically adapt, pivot and thus position itself for the investment opportunities ahead. While the changes driving these strategy shifts all have implications on the business operating model, the industry is well positioned to address those challenges. 

162 hedge fund managers, representing approximately USD $1 trillion in AUM, were questioned for the Global Hedge Fund Industry: Accelerating out of the pandemic report, which explores how hedge funds have pivoted to the new working environment brought by the onset of the COVID-19 pandemic. 

Product innovation, encouraged by investor demand, is a top-of-mind concern for many managers and is propelling many of these to offer new forms of tailored investor products and also to enter new investment arenas, specifically around private markets. Just under half (46%) of those surveyed predict hybrid hedge/private equity products to be the most popular in the next 12 months, with another 33% also pointing to private credit. 

Looking ahead to 2022, when asked what the chief concern of the coming 12 months was, regulation was cited by 42 percent of respondents. 

Compliance headwinds are expected to increase globally: the pace of regulatory change is accelerating in the EU and UK as each side seeks to forge a new path post-Brexit. Firms must get to grips with unfamiliar rulesets as they increasingly move into new investment classes, be that digital assets or private markets; and supervisors are ever more focused on the operational resilience of the sector – a reaction to the market stresses of COVID-19 – as well as the validity of firms’ sustainability claims in an era of huge growth in environmental, social and governance (ESG) investing. 

In addition, the new operating model will introduce further considerations for compliance officers around people and data management in a decentralized working environment.

Tom Kehoe, Global Head of Research and Communications, AIMA, said: 

“When we carried out the research for the annual report last year, the work focused on how hedge fund managers were coping with the economic devastation wrought by the pandemic. We found an industry agile and resilient in the face of massive market disruption. The findings from this year’s research describe an industry poised to accelerate out of the pandemic, with firms adopting new approaches to improve the efficiency of their business model and developing new investor solutions to deepen their alignment with investor clients.” 

The survey questioned hedge funds on how they were approaching the challenges of operating in a decentralized and hybrid environment, including the long-term implications on technology and cybersecurity spend, data and talent management, and stakeholder engagement, among other topics. 

Almost a third (32%) say they expanded their investor teams and increased its organizational importance as it pertains to capital raising and investor relations. Meanwhile, ESG is also expected to remain as a driving force for change, although hedge funds have currently paused from embracing this important product market trend further by a lack of global standards and actionable data. 

Steven Menna, National Hedge Fund Segment Leader, KPMG in the US, added: 

“In the early stages of the pandemic, the hedge fund industry successfully adapted to meeting the needs of its investors in a decentralized environment. Our new research demonstrates that once again the hedge fund is continuing its agile and resilient journey by addressing the opportunities and challenges presented by product innovation and complexity, the impending compliance headwinds, and the continued search for talented people. At the same time, it’s transforming its operating models for the hybrid working environment and is poised for its next growth phase as it accelerates into 2022.”

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