Hedge funds are still spending too much time on spreadsheets despite the advanced technologies available to them, new global research by Beacon Platform shows. And they are incurring greater, and possibly unnecessary, risks by doing so.
The study of 100 hedge fund executives in the US, UK, Germany, Switzerland, France, Italy, Sweden, Norway, and Asia responsible for a collective $901bn in assets under management, found that 73% say their fund or department is wasting time with manual or spreadsheet-based portfolio analytics and optimisation.
According to Beacon, there are significant risks of relying too heavily on spreadsheets beyond wanted time, including missed opportunities, reputational damage, and even billions of dollars in regulatory fines and investment losses as a result of slow processing times or errors in complex calculations within spreadsheets.
The research revels that funds with the highest amount of spreadsheet usage are half as likely to think they were spending too much time with spreadsheets than those with the lowest usage.
Average usage is higher at the smallest funds (under $1bn AUM), dropping by around 20% in the mid-range funds ($1bn to $25bn AUM), and then jumping up by 34% for the largest funds (more than $25bn AUM).
Funds with a higher usage of spreadsheets also thought that it would be harder to navigate changing regulations, while greater spreadsheet usage was associated with lower visibility of the current risks facing the fund and less likelihood of improvements in risk visibility over the past two years.
Ina addition, the highest users of spreadsheets were 30% more likely to be concerned about their exposure (the ability to look at correlation, covariance, VaR, and other relationships between all asset types) and coverage (including all assets and products traded in the same system) than the lowest users.
Light users of spreadsheets (10% to 25% of risk management processes) were two to three times as likely to rate as “Excellent” the scalability (how quickly and cost-effectively they could respond to demands for greater computing power, larger datasets, or other performance demands) and accuracy (if they could get mark to market on all exchange-traded products and adopt industry standard models for all products) of their systems, compared to the heaviest users (50% or more of risk management).
Kirat Singh, Co-Founder and CEO, Beacon Platform, said: “Excel spreadsheets clearly have a place in managing trading activity and risk management in the hedge fund sector. However, with so many saying that they are spending too much time on spreadsheets, there is a strong case for greater use of the available technologies. Leading funds are turning massive spreadsheets with millions of cells into cloud-enabled analytics, increasing the scale and speed of their analysis and decision making.”
