Hedge funds facing new challenges, study shows

Market conditions and changing investor preferences are creating new challenges for hedge fund managers’ capital raising ambitions, a new study has shown.

According to the EY 2018 Global Alternative Fund Survey, 20 per cent of investors globally plan to decrease allocations to hedge funds in 2018, which continues a multi-year trend of slowing allocation appetite for hedge fund products.

“Alternative asset managers are grappling with a whirlwind of changes, and they can either act now to address industry disruptions – ranging from technological innovation to products and competition from new players – or admit defeat and lose competitive market share,” said Antoinette Elias, EY Oceania Wealth and Asset Management Leader.

“In order for alternatives to stay ahead, they need to meet investor demand for customisation, implement technology that augments investment decisions, and hire the proper talent to both manage technology and bring outside thinking to the traditional financial services mindset.”

According to EY, as investors demand more customised products and outcome-oriented solutions, hedge fund managers find themselves in increased competition as each is increasingly tapping into investor desire for non-traditional offerings such as private credit, real estate and real assets.

The firm also said that hedge fund managers are embracing AI at a rapid pace in the front office, and while quantitative managers have been on the forefront of this technology for years, managers of all strategies are now taking advantage of next-generation trading systems and tools.

And for alternative asset managers, the EY survey showed that talent management emerged as a key concern.

“The ability to navigate the talent landscape has never been more critical for asset managers. Firms need to integrate technology skill sets with traditional finance professionals, which can be a challenging balance to achieve,” Elias said.

“Further, there is strong competition for data scientists, programmers and other in-demand skill sets among alternative asset management firms. Both managers and investors see this as a priority as alternative asset managers consider the next generation of talent and what skills they need in the future for success.”