Quant hedge funds tipped to flourish with institutional inflows set to rise

Andrew Liddle, SIGTech

Pension funds and institutional investors are set to increase their allocations to computer-based hedge funds over the next 12 months, with FX and equities-focused strategies tipped to see the biggest rise, according to new industry research by fintech and quantitative analysis platform SIGTech.

SIGTech’s ‘Hedge Fund Research Report 2021’ polled 100 leading hedge fund managers across the US, the UK and Asia in June, collectively managing more than USD231 billion in assets.

The study found that 80 per cent of those hedge fund managers polled expect institutional investors to up their allocations to quantitative strategies this year, with some 51 per cent expecting a ‘slight’ increase and 29 per cent forecasting a ‘dramatic’ increase.

It also found 78 per cent of managers believe systematic strategies – which use computer-driven models and complex algorithms to trade a range of assets – are well-placed to perform better in 2021 than in 2020, with 68 per cent expecting quants to outperform this year.

Roughly three-quarters (73 per cent) of those surveyed said the prevailing economic and fiscal environment is particularly suited to quant funds, while nearly six out of ten (59 per cent) believe many are becoming more attractive because they offer diversification benefits for investors’ portfolios.

Against that backdrop, more systematic strategies are expected to capitalise on the attractive market conditions, with some 86 per cent of those quizzed expecting a rise in the number of quant hedge funds over the next five years. 

Asked about asset inflows over the coming 12 months, FX and equities-based quant funds ranked highest among the survey’s participants, followed by rates, volatility and commodities-focused funds.

SIGTech – which spun out from global macro hedge fund giant Brevan Howard Asset Management in 2019 – is a London-based fintech and quantitative analysis platform supporting data-driven, rule-based systematic investment processes for asset managers and hedge funds globally.

Chief Operating Officer Andrew Liddle (pictured) pointed to the growing levels of sophistication and innovation across the quants sector which is ultimately helping to drive its momentum.

“2021 is proving to be a strong year for hedge funds in terms of performance and the sector is on track for sustained growth. Exposure to new or previously under-utilised datasets and methods in social media, crypto, and even more recently, nowcasting, are further fuelling innovation in the industry,” Liddle said.

“When launching new systematic investment processes, infrastructure build-out and data management can be slow and expensive, while strategy development and backtesting can be cumbersome and repetitive. Fund managers are increasingly looking for new ways to reduce inefficiencies and create operational leverage via SaaS solutions and ‘plug and play’ technologies to ensure that their funds can improve their pace, scale and innovation when launching new strategies.”

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Hugh Leask
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