Home Finance How Technology has Improved and Aided the Hedge Fund Investment Industry

How Technology has Improved and Aided the Hedge Fund Investment Industry

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It is estimated that in 2017, investment into distribution technology alone ranged from $5 million to $10 million among firms with less than $250 billion in assets, while businesses managing more than $500 billion allocated as much as $50 million or more [1], with this amount only expected to have risen in recent years.

With hedge fund investment firms investing heavily into their technological advancements, IG Prime has researched the ways in which tech has impacted institutional trading. They have addressed the increasing impact technology is having to encourage companies within the industry to work with technological advancements in order to ensure they are not left-behind and can maintain a competitive edge in a fast-paced and saturated market.

Constant analysis, made possible by tools and software, frees up valuable employee time and results in safer investments

The more analysis a company has, the more likely they are able to correctly predict the outcome of investments, resulting in a lowered risk. Constant analysis allows reporting systems to be adaptable in order to reflect the needs of more complex clients and offerings, which are now becoming increasingly common. Real-time minute by minute updates allows investments to be tracked closer than has ever been possible before, allowing greater industry-wide clarity and understanding.

Simon Myers, Chief Technology Officer at IG Prime, said: “Hedge funds have high demands and it is critical they have access to powerful analysis tools and capability to understand their level of complexity and expected returns. To make educated decisions, managers work with an abundance of data available across portfolio and execution management systems.

Where technology and AI has benefited the industry more recently is combining this data into one system to allow for a more holistic view of the data available, such as predicting corrections in supply and demand imbalances, in order for better decision to be made.”

Technology allows for more transparency

The rise in technology allows managers to interpret the data they have access to more easily instead of having information hidden away in filing cabinets, or across several laptops and spreadsheets. A data hub results in it taking seconds to run reports on specific markets and stocks, which in turn helps improve efficiency. By having one central location for information, it also makes it easier for regulators to monitor companies and ensure safe practices are being used throughout the industry.

Simon Myers, Chief Technology Officer at IG Prime, said: “The regulatory landscape has evolved for the hedge fund industry with reforms introduced via AIFMD, MiFID II and SMCR. On top of this, there’s also increased demand for improved performance and efficiency from investors and the MiFID II.

As a result, many hedge funds are investing in technology to enhance competitiveness and automate compliance to ensure robust adherence to new rules. The automated aspect of technology in trading allows for thorough reporting – which can take a substantial amount of time if done manually – it critically removes the risk of human error – and gives clear transparency to investors.”

Mobile apps mean investments can be made from anywhere in the world

Investing is more accessible than it ever has been before, made possible by the introduction of mobile apps. With 90% of the global population owning a smartphone [2], it means that the majority of people can get involved in trading, whether it be forex, ETF’s or cryptocurrency, if they wish. Gone are the days when lengthy phone calls were made in order to discuss risk and make trades, instead they can now be accomplished by the tap of a screen, sometimes without the need to talk to an expert. Mobile apps allow investors to buy and sell on exchanges throughout the world irrespective of the individuals location or time zone.

“More and more we’re seeing clients move to a ‘mobile first’ approach to trading. IG has developed mobile platforms built with our client’s performance at the forefront, enabling them to make better decisions and succeed,” said Simon Myers, Chief Technology Officer at IG Prime. “Our advanced trading platforms are engineered for speed, stability and resilience, routinely processing multi-million trades per month and providing access to more than 40 global financial markets.”

Conclusion

Technology has allowed the industry to adapt and change at a rate that was unthinkable just ten years ago, but it is the employees who give companies a competitive edge.

Whilst some tools and software are readily available, adapting these to the needs of the company, and ultimately the client, is where gains can be made. Technologists need the insight of market strategists and account managers in order to ensure the systems are constantly being adapted and improved to the clients benefit.

Further to this, technology is something which simply cannot be ignored with the increasing influence of AI, RPI and Blockchain Computing something which the industry should be striving to prepare for. 17% of investment professionals are already incorporating AI into their processes [3], showing how easy it is to fall behind if technological advancements are not kept up to date.

Sources:

[1] https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/how-technology-will-redefine-asset-management-relationships.pdf

[2] https://www2.deloitte.com/uk/en/pages/technology-media-and-telecommunications/articles/mobile-consumer-survey.html

[3] https://www.bobsguide.com/guide/news/2019/Jun/26/how-ai-could-shape-the-future-of-investment-banking/#:~:text=Artificial%20intelligence%20(AI)’s,lead%20generation%20and%20customer%20experience.&text=220%20of%20the%20250%20have,the%20bank’s%20partner%20Blue%20Prism.

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