Hedge fund managers losing millions as order delays mount up

An unprecedented number of delays when sending out orders to market is costing hedge fund managers USD20 million per year, according to new research from TradingScreen. 

A combination of operational inefficiencies and trade errors cause the majority of delays, while high costs associated with IT systems maintenance is also a significant contributor. The findings show that the most unprotected trade errors cost hedge funds anywhere between 3 and 10% of trade notional, which in some cases is USD5 million a year. 

Time delays and execution slippage, which is the difference between the expected price and the price at which the trade is executed, impacts performance by 2 per cent of AUM, which results in costs as high as USD9.5 million annually. When it comes to IT support and administrative costs, a large hedge fund with USD5 billion AUM spends between USD3.5 and USD5 million.  

Varghese Thomas, President and COO at TradingScreen, says: “From computer meltdowns to human errors, erroneous trades and order delays are caused by a myriad of factors. With so much disruption facing markets right now, hedge fund managers can ill afford not to keep execution delays down, particularly now that European share trading is likely to fragment post-Brexit. 

"To minimise costly execution slippage and operational risk, hedge fund managers need to assess whether their existing systems can handle increasingly complex, high volume trading across all asset classes. This is the most pragmatic solution to achieving trading scalability and, most importantly, protecting alpha and avoiding operational risk factors which prevent AUM growth.”