Hedge funds face sweeping changes to remote working and office space, as firms review footprint

Working from home

Most US hedge funds and other alternative managers expect to return to work before year-end, but a majority predict sweeping changes to work-from-home policies and office layouts, with close to a third of New York-based managers mulling a reduction in office space, a deep-dive industry study by Seward & Kissel has found.

The US law firm’s Alternative Investment Manager Covid-19 Survey examined the potential long-term effects of the coronavirus pandemic on the alternative investment industry’s business functions, quizzing a range of CFOs, COOs, CCOs and GCs from hedge funds, private equity and other alternative investment managers.

Overall, more than half (54 per cent) of alternative investment managers surveyed now expect to fully return to their offices by the end of 2020 - but close to three-quarters of those polled (72 per cent) also believe firms are going to overhaul their work-from-home policies.

More than two-thirds (69 per cent) of those surveyed predict office layouts will also change going forward.

The study also probed how hedge funds and other alternative investment managers are grappling with investor due diligence processes during the lockdown.

Generally, about two-thirds of respondents have increased their use of conference calls (63 per cent) and video conferencing (60 per cent), and more than a third (34 per cent) have upped their use of screen sharing.

While a majority of small firms of 1-10 employees already had work-from-home policies in place pre-coronavirus, just a third of large firms (100-499 staff) had the same, indicating smaller managers enjoy a more nimble and flexible approach.

“This result may, in part, be due to some of the challenges of remote working that sometimes arise when one or more larger teams of personnel are required to collaborate together on a regular basis,” the report observed.

Similarly, firms with bigger headcounts are less optimistic about a full return before the end of the year, with just a third of survey respondents from firms with workforces of 100-plus employees expecting a 100 per cent return prior to 2021, as compared to more than half (56 per cent) of participants from firms with less than 100 employees.

While hedge funds and other alternative investment managers based in New York are more optimistic about returning to offices early than those based elsewhere, they also expect more far-reaching changes to the working environment than non-NY firms, the survey found.

Specifically, some 90 per cent of New York-based respondents believe half of their workforce will be back in the office by the end of the year, compared to 75 per cent of managers based elsewhere.

At the same time, though, close to a third of respondents (28 per cent) in New York felt that their firms would reduce their office space, while just 5 per cent of respondents working outside of the city felt that their firms would do the same.

Seward & Kissel said in the report that the Covid-19 environment has likely encouraged C-level executives to evaluate their firm’s real estate footprint, with a potentially “significant” impact on New York real estate.

The report said: “Will alternate locations outside of key metro areas, such as NYC, be considered? Does the size of major city office locations need to be reduced? Are alternative work arrangements such as the use of remote employees poised to become more prevalent?”

Steve Nadel, investment management group partner at Seward & Kissel in New York, said the new research shed light on disparities in policies and expectations for the future among fund managers of varying sizes and office locations.

“The ability to pivot effectively with respect to infrastructure, fundraising, and investment strategy will be a major differentiator for managers,” Nadel said.

“Technology tools have obviously made it possible to work remotely more seamlessly than ever before, but certain survey results – like the relatively small percentage of respondents outside of New York City who believe that their office spaces will be reduced – suggest that physical workspaces still matter, especially for more complex organisations.”

While the immediate effects of the coronavirus crisis on markets, economies and investment funds’ performance have garnered considerable column inches, the longer-term fundamental impact on how investment management companies operate day-to-day has been less closely examined.

Seward & Kissel’s findings chime with a recent wide-ranging study by the Alternative Investment Management Association, the trade body for the global hedge fund industry, on how hedge funds are returning to work as lockdowns begin to ease.

AIMA’s report found that firms with smaller headcounts are more confident on resuming client contact and overseas travel later this year, while firms with larger staff numbers do not expect to return to normal until 2021, hinting at bigger practical challenges in ensuring social distancing among employees.