Most hedge funds are now moving to a permanent hybrid working environment as a result of the Covid-19 pandemic, but concerns over team-building, collaboration and decision-making remain, as more managers look to expand their product offering into new areas and strategies, a wide-ranging new study published by the Alternative Investment Management Association and KPMG has found.
Most hedge funds are now moving to a permanent hybrid working environment as a result of the Covid-19 pandemic, but concerns over team-building, collaboration and decision-making remain, as more managers look to expand their product offering into new areas and strategies, a wide-ranging new study published by the Alternative Investment Management Association and KPMG has found.
AIMA, the global industry trade association for hedge funds, and KPMG quizzed 162 hedge fund managers collectively representing USD1 trillion in assets under management – roughly quarter of the total global industry assets – on how their businesses are pivoting to the new working environment that has resulted from the coronavirus pandemic.
The report, titled ‘Accelerating out of the Pandemic’, follows last year’s survey, ‘Agile and Resilient’, which gauged how managers of all sizes were grappling with the range of challenges thrown up by the crisis.
For this year’s report, respondents were questioned on how they are now optimising collaboration within the challenging hybrid work environment, the ways in which they are navigating the virtual capital raising process, and what new investment opportunities are emerging from the events of the past two years, among other things.
While some 51 per cent of managers are continuing to focus on their firm’s core investment strategy, 49 per cent are complementing their traditional investment strategies with private markets or other new products or strategies as a result of the new landscape. Specifically, 28 per cent are evolving to offer new products and strategies that are growing in demand; 11 per cent are considering unique offering in private equity and other less liquid strategies; and 9 per cent are customising portfolios for significant investors.
The study also found that almost four-fifths of all respondents – 79 per cent – are now moving to some form of permanent hybrid working, though there continue be reservations among some about the new models.
More than half – 52 per cent – of respondents said maintaining company culture and team-building is the most significant challenge arising out of decentralised working, while a further 30 per cent named the lack of real-time collaboration and decision-making as the key hurdle.
Team-building challenges stemming from the segregation of employees is a concern among roughly a third of respondents, with similar numbers concerned about the negative impact on company culture of long-term hybrid working, and about calendar headaches resulting from hybrid attendance.
“It’s not practical to ask your team to come up with that light bulb moment at 3pm on Thursday next week,” said one US hedge fund manager interviewed for the study.
Quizzed on their top three takeaways from the remote working experience, 61 per cent of hedge funds said technology advances helped their operational effectiveness, while 54 per cent said the new environment has provided a better understanding of the importance of digital tech. Some 28 per cent said they now had a greater appreciation of ownership and access to data.
Delving into the capital-raising environment, close to a third – 32 per cent – of managers surveyed have expanded investor teams and increased its organisational importance during the pandemic. Overall, some 72 per cent said previous investor relationships are tantamount to retaining and growing capital.
Despite the challenges, the study said the hedge fund industry “thrives during periods of market volatility” thanks to its ability to “adapt and overcome historical and emerging challenges,” adding that hedge funds are “rising to the occasion” as a result of the new post-Covid working environment.
Product innovation, encouraged by investor demand, is a top-of-mind concern for many managers and is propelling many of these to offer new forms of tailored investor products and also to enter new investment arenas, specifically around private markets. Just under half (46 per cent) of those surveyed predict hybrid hedge/private equity products to be the most popular in the next 12 months, with another 33 per cent also pointing to private credit.
Looking ahead to 2022, when asked what the chief concern of the coming 12 months was, regulation was cited by 42 per cent of respondents.
“When we carried out the research for the annual report last year, the work focused on how hedge fund managers were coping with the economic devastation wrought by the pandemic. We found an industry agile and resilient in the face of massive market disruption,” said Tom Kehoe, Global Head of Research and Communications, AIMA.
“The findings from this year’s research describe an industry poised to accelerate out of the pandemic, with firms adopting new approaches to improve the efficiency of their business model and developing new investor solutions to deepen their alignment with investor clients.”
Steven Menna, national hedge fund segment Leader, KPMG in the US, observed how the hedge fund industry successfully adapted to meeting the needs of investors in a decentralised environment during the early stages of the pandemic.
“Our new research demonstrates that once again the hedge fund is continuing its agile and resilient journey by addressing the opportunities and challenges presented by product innovation and complexity, the impending compliance headwinds, and the continued search for talented people,” Menna added.
“At the same time, it is transforming its operating models for the hybrid working environment and is poised for its next growth phase as it accelerates into 2022.”
