Cost control and efficiency will be the key drivers behind an increase in demand from hedge funds for third party risk management services according to a new survey of 100 executives with a combined $901bn of assets under management, by Beacon Platform.
Nearly nine out of 10 (86%) of the 100 hedge fund executives with a combined $901bn of assets under management, questioned in the survey, say they expect the use of third-party providers to increase over the next five years, with 26% predicting a dramatic increase.
Respondents highlighted cost, efficiency, and subject matter expertise as the top three factors behind the increase in outsourcing to third parties. However, the research by the portfolio analytics and risk management platform provider found that outsourcing is not the only action hedge funds are taking to address risk management concerns.
As they try to better understand and increase visibility of portfolio risks and exposures, all hedge funds questioned said they are likely to switch vendors for some or all of their trading and risk management software over the next two years. And around 23% are very likely to switch.
Among those who have seen an increase in risk visibility, nearly 55% ranked greater investment in technology as a key factor behind this, while nearly 47% ranked greater use of third parties who specialise in this area as a reason.
When asked what other actions funds are taking to address any skill gaps in risk management, the study for Beacon found around 72% are increasing the level of training, 54% are outsourcing more, and 52% say they are increasing their IT budget.
Andrew Dunlop, Senior Product Manager at Beacon, said: “Risk management is crucial for hedge funds and our research shows that the industry is taking multiple steps to boost their capabilities. While they are increasingly looking to third-party providers to provide support, outsourcing is not the only solution. Hedge funds are simultaneously increasing investments in training and technology, and many are looking to recruit from a wider range of industries to help enhance their risk management skills gaps.”
