By George Ralph, RFA – Last year was all about the compliance; with MiFID II and GDPR, about understanding your data, knowing where it is, protecting it and how to extract what you need to report to the right authorities, within the nominated timescales.
This year may be a tough year for the alternative investment sector and for hedge funds, with Agecroft Partners, in its annual predictions post, suggested that as many as 90 per cent of all hedge funds do not justify their fees, don’t deliver good returns and could be in danger of closure in this overcrowded market.
It’s not all bad though. The same post also states that hedge fund assets have reached an all time high for the past five quarters, and believes that they will continue to grow over the next 12 months.
So how can alternative investment firms take a share of the market and bag some of those assets? Technology can play a huge part in the success of a firm and can make the difference between success and failure. By employing big data analytics tools and expertise, firms can harness the power of the data that they hold and use it to more accurately forecast the markets’ behaviours, or to identify new and differentiated alpha sources. By gathering and analysing non-traditional data sources, such as social signals, geolocation data, satellite imagery and newsfeeds, firms hope to make faster, more accurate securities valuations and bringing the elusive information advantage.
When combined with artificial intelligence, or its cousin, machine learning, huge volumes of this big, or unstructured data can then be analysed for patterns and repetitions, and to help make predictions about the way a market may behave.
It’s not all as far fetched as it sounds, ML and AI technology exists and is in the early stages of adoption, but in order to utilise the technology, firms will need the skills, and a quick trawl of Galssdoor unearths almost 4000 available jobs in London with “Big Data” in the title. Admittedly these are from many different sectors, and some have moved more quickly than financial services, but it is clear that Data Scientists, Big Data Developers, Machine Learning Scientists and Business Intelligence Analysts are the new normal, and hotly in demand. These individuals are using the plethora of new tools and solutions to turn data into actionable tools, using visualisation to bring the data to life and make it accessible for non-technical staff such as fund managers and the board alike.
The other hot ticket in technology for the sector is blockchain. Whether using it as part of the firm’s technology estate, or investing in it, firms should not write it off as a flash in the pan. It could offer a credible, automated solution which removes hum conflict of interest and provides regulators and investors with clear, transparent transaction reporting. It is early days, but 2018 should see some real progress in this area.
Finally, I believe that many more firms in the alternative investment sector will outsource critical services to expert providers, who operate externally to their core in-house teams. Compliance, legal, data and analytics, technology and cybersecurity are some of the areas where good outsource providers can bring a depth of knowledge and understanding that most firms could only dream of possessing in-house. Just make sure you do all the usual due diligence on outsource partners to make sure they fulfil your legal and statutory obligations and are in tune with your own corporate and business goals.
Good luck. You know where we are if you need us.
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