Cloud-based hedge funds report gains in efficiency and data security but struggle with data unification
Hedge fund managers are growing more comfortable with moving data to the cloud in order to enhance operational value, but find data management their greatest challenge as well as their top spending priority for the year ahead.
That's according to a new survey of 56 hedge fund managers by investment management technology provider Enfusion, which reveals the state of cloud in the industry, managers’ system preferences and hosting decisions, data management challenges, as well as the lessons traditional asset managers can learn from cloud-based hedge funds.
“The shift in acceptance and adoption of cloud-based technology marks an inflection point for the industry as investment management firms of all sizes adapt to the digital working world,” says Thomas Kim, CEO of Enfusion. “This research reinforces what we’ve known at Enfusion for years, that having a strong data fabric and unified, integrated infrastructure hosted natively in the cloud leads to cost savings, enhanced data management, and better performance through operational efficiency.”
Hedge fund managers that are fully or partially using cloud unanimously reported improvements in operational efficiency with 96 per cent stating they have maintained the same level of operational staffing post-migration and none have reduced headcount. Fully and partially cloud-based managers (72 per cent and 50 per cent) also said migration to the cloud improved data security, and two-thirds of the fully cloud-based firms report improvements in cybersecurity as well as better protection of their intellectual property.
Despite expressed security benefits, the majority (81 per cent) of hedge fund managers operating a predominantly on-prem infrastructure say concerns over data security hold them back from full cloud migration, while legacy systems are the second most commonly cited reason among on-prem and hybrid (partially cloud-based) managers as the biggest roadblock.
Cloud adoption has also led nearly half of all managers (44 per cent) to be more open to outsourcing. In fact, HFM Insights found that in Q2 2019, 70 per cent of hedge fund managers were already outsourcing at least some of their operations, with that trend most prevalent among smaller managers (<USD250 million) at 86 per cent.
Smaller managers (<USD1 billion AUM) are also twice as likely (44 per cent) to launch in the cloud compared to more mature managers. The smallest hedge fund managers (<USD250 million) are most likely to leverage machine learning and AI tools within their business.
Data is the lifeblood of any investment manager, however, generating and acquiring more data creates new considerations and challenges as well as opportunities for hedge fund managers of all sizes.
The largest hedge fund managers (>USD5 billion) are most likely to struggle with unifying data from multiple sources (75 per cent). When it comes to small managers (<USD250 million), two-thirds (65 per cent) express difficulty with unifying their data, and 29 per cent find data duplication a challenge.
To tackle the challenge of disparate data, over half (57 per cent) of hedge fund managers plan to increase their spend on unifying data from multiple sources in the year ahead.
For managers in North America, APAC, and Europe, investment in data management varies, however hedge funds in APAC expressed the highest levels of commitment to rectifying this issue.
• Seventy-three per cent of North American hedge funds state multi-source data as a challenge, but only 50 per cent plan to invest in addressing it.
• One hundred per cent of APAC managers plan to invest in challenges with disparate data despite only 40 per cent feeling it was a problem in their business. Three-fifths of APAC managers also plan to increase spend on unifying data from their front, middle, and back-office systems.
• In Europe, 40 per cent of managers plan to ramp up spending to improve the provision of data insights to clients.
“Today more than ever, creating an operational infrastructure that works best for your business requires many complex decisions,” says Dan Groman, Enfusion’s SVP, Global Head of Technology. “The key for investment managers is to match infrastructure to ambition, ensuring your technology stack can meet the functional requirements today and your comfort level for risk as you grow, while also unlocking the full potential that accurate and real-time data can offer.”