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Operational efficiency critical to competitive advantage

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The extended ramp up in regulation coupled with the challenging economic environment means hedge funds need to continue to look for ways of operating more efficiently in order to stay ahead.

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The extended ramp up in regulation coupled with the challenging economic environment means hedge funds need to continue to look for ways of operating more efficiently in order to stay ahead.

“The pace of regulation and enforcement is a constant challenge. The SEC and PCAOB raise their expectations every year. In a more heavily regulated environment, we have to continue to seek out ways to operate more efficiently. We need to work smarter and not harder to remain competitive. It’s a really tough equation,” comments Keith Stafford (pictured), market leader, alternative investments, Cohen & Company. 

Hedge funds are also dealing with a tough economic environment in which they have to continue to provide positive returns and raise capital to be successful. “Everyone is fighting over a piece of the same pie, and it’s hard to differentiate yourself in this market,” warns Stafford.

One way hedge funds are focusing on sharpening their competitive edge is by leaning more heavily on their business advisers. Stafford notes: “From remote work and resource limitations, to raising capital and finding alpha in a bear market, they have a lot going on, and spending time on audit and tax returns naturally is less of a focus.”

In view of this, hedge funds need to handle their compliance efforts efficiently and effectively, so they can focus on the host of other issues surrounding their businesses. And, when working with third party advisers, they need to be confident those firms will do their part in helping them comply with applicable laws and regulations, which includes delivering services on time and as promised.

Stafford gives the Cohen & Company perspective: “The most impactful driver of client demand is that we deliver. Clients have confidence in our abilities and have a great experience working with us. Clients have other issues to worry about, so knowing we are capable, consistent and that we care gives them confidence we will come through for them. Reputation in this market is everything. The reputation we’ve worked so hard to build is what ultimately creates the demand for our services year over year. We are very proud of that.”

From its perspective, the firm believes there is significant scope to assist clients further. Stafford elaborates: “We know that we have only skimmed the surface with how our advisory services can help our alternative investment clients. We provide a significant service offering already, but there is so much more we can do for clients. We know the operations side of hedge funds as well as anybody, and how this type of business works — the evolution of the business, when problems will arise, etc. It’s almost second nature to us.”

Meanwhile, the outlook for the alternatives industry remains strong, as institutional investors will always want these types of funds in their portfolio and retail demand is also growing.

“This industry is still a place where the best and brightest gravitate toward. Hedge fund managers are incredibly smart and capable, spending their careers trying to figure out inefficiencies of market and predict returns, etc. It’s a solid industry from every perspective,” Stafford concludes.

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