A revolution in technology is transforming the way hedge funds operate, offering managers advantages – as well as challenges – in tumultuous times.

As hedge funds continue to tap into alternative datasets to help manage risk and boost performance, the need for managers to strengthen their expertise in sourcing, testing and processing information is now critical.

Over the past two years, three trends have emerged across all-sized hedge funds regarding outsourcing. The first: outsourcing more services than before Covid-19 for cost-effectiveness; the second: an increase in use of cloud providers and data solutions; and finally: closer attention to cybersecurity risks.

As financial markets have rapidly digitised over the past decade, and the availability and pace of the information exchange has accelerated, the traditional barriers between human- and machine-based strategies are steadily being eroded.

Attracting and retaining the top tech talent is now tougher than ever for hedge fund managers, as competition for data engineers, coders and computer scientists intensifies.

Research from SigTech’s 2021 annual Hedge Fund Research Report saw 80 per cent of hedge fund managers expecting institutional investors to increase their allocation to quant strategies over the following year, and 86 per cent expecting quant hedge fund strategies to increase allocations over the following five years.

Hedge funds trading technology companies endured a bumpy start to 2022, with bets on a slew of blue-chip stocks souring as investors took flight amid fears of rising inflation and interest rates coupled with concerns over US economic growth.