Rethinking the cloud, a heightened call for operational freedom and an arms race to scale will be industry-defining issues for the alternative asset management industry in 2013, according to Gravitas, a co-sourcing platform providing cloud technology, co-sourcing and risk support to the alternative investment industry.
"With the lessons learned from a string of major frauds, the ripple effects of an epic financial crisis and regulatory upheaval, the alternative investment industry finds itself on the threshold of a new era marked by the emergence of exciting new business models," says Gravitas chief executive Jayesh Punater.
"More than ever, the hedge fund and private equity industries are embracing innovation across the value chain in order to build sustainable, increasingly global businesses. For next-generation service providers in 2013, that means delivering a robust platform of integrative services, comprising people, processes and technology that enables clients to maximize operational efficiency, at minimal upfront costs, towards establishing a world-class infrastructure.
"Over the last several years, we've seen the steadily growing embrace of alternatives by institutional investors coupled with continuing diversification among hedge funds and private equity firms into each other's areas of business as well as into areas such as real estate, insurance and new allocation strategies. As a result, the comfort zone around outsourcing key parts of a hedge fund's operation has grown substantially.”
Punater sees several key issues topping the industry's agenda in 2013, including:
• An arms race to scale. "The continuous growth of competition has contributed more than any other factor to an arms race for scale," Punater says. "Hedge funds have come to realise that the platforms they employ in this new era must afford institutional scale in order for them to successfully compete and grow. And they must accomplish this while confronting a daunting range of demands – from reporting, transparency, risk controls and custodial and administrative processes to a heightened demand for product diversification."
• Co-sourced solutions. Achieving a sustainable competitive advantage will require hedge funds and next-generation service providers to collaborate in new, highly integrative ways in 2013. "Vendors in 2013 must continually redefine service. The way to do this is to put people, processes and technology to work in innovative ways that constitute a new standard of partnership," says Punater.
• Operational freedom. "Every morning, clients need to ask themselves: 'What am I doing today to improve operational efficiency?' By reducing operating expenses 15-20 basis points, the top 100 alternative asset management firms alone could realise USD30bn to USD45bn in savings. One way to greatly accelerate operational efficiency and scale is by leveraging the private cloud, which is rapidly evolving from a compelling technology offering to an entirely new way of thinking about your business," says Punater.
• Risk as a Service (RaaS). "Risk is the lifeblood of growth," says Punater. "But the new era of harsh economic and competitive forces, complex regulatory demands and sheer speed means firms must forge new perspectives on enterprise risk that support strategic decisions. This is particularly the case for emerging and midsize firms, which have a limited window to make their move."