Hedge funds are private investment partnerships that pool money from institutional investors to invest in a variety of financial instruments.
The hedge fund space has exploded over the past 20 years. There are now more than 10,000 funds and an estimated $3 trillion (£2.2 trillion) in assets under management.
One reason for this growth is that technology now enables hedge funds to do things they could’ve never imagined before.
IG Prime has researched the ways in which tech has impacted institutional trading in hedge funds. Here’s what they found out.
Hedge funds are investing heavily in tech
In recent years, hedge funds have made significant investments in technology to help automate and streamline the range of services they offer.
For example, it is estimated that in 2017, investment in distribution technology alone ranged from $5 million to $10 million among firms with less than $25 billion in assets. Those in charge of assets worth more than $500 million allocated as much as $50 million or more.
This figure could rise much higher in the near future, and there’s a good reason for it.
How tech is aiding hedge funds
According to IG Prime, technology is aiding hedge funds in three major ways.
1. Tech has enabled constant analysis
The use of technology frees up valuable employee time and results in safer investments. Constant analysis enables reporting systems to be flexible enough to meet the needs of increasingly complex clients. It’s now possible to track investments more closely than ever before thanks to real-time minute-by-minute updates.
Technology has also made it possible to combine the massive amounts of data that fund managers frequently have to work with into a single system.
This allows for a more holistic view of the data, such as predicting corrections in supply and demand imbalances. The ultimate result is better decision-making.
2. Tech allows for more transparency
The advancement of technology allows managers to more easily interpret the data they have access to, rather than having information hidden away in filing cabinets or spread across multiple laptops and spreadsheets.
A single data hub for all data makes it easier to run reports on individual markets and stocks. It also makes it easy for regulators to monitor companies.
And as Simon Myers, chief technology officer at IG Prime says, many hedge funds are also automating compliance to ensure robust adherence to new rules.
This automation allows for thorough reporting, which can take a significant amount of time if done manually. It reduces the risk of human error and provides investors with more transparency.
3. Tech makes it possible to invest from anywhere in the world
Technology has made investing more accessible than ever before. Thanks to mobile apps, investors can trade shares all over the world, regardless of their location or time zone.
With many investors choosing to trade on their phones, firms such as IG are devoting more capital to the development of top-notch mobile platforms that can assist their customers in making better decisions and achieving success.
The impact on hedge funds
As the stakes in the investment world grow higher year after year, so do the number of hedge funds that are looking for ways to improve the way they operate.
Many realise that having a team of decision-makers may not be enough without proper technology to support their trading.
This is why it is no surprise that more and more firms are turning towards innovative software solutions and services in order to boost organisational efficiency and gain a competitive edge.
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What about the rest of the investment landscape?
Technology is shaping the entire investment world, not just hedge funds. It’s redefining what it means to be an investor.
For example, it wasn’t too long ago that if you wanted to trade shares, you had to call a broker to do it for you. Basically, trade executions used to be facilitated by phone calls or even physical meetings, making it a time-consuming process.
Things have changed dramatically since then. Today, investors can easily open an online share dealing account with their preferred brokerage and execute trades quickly by themselves with a few mouse clicks or phone taps.
Whatever your investment goals are, whether to grow your assets or simply supplement your income, it’s becoming increasingly clear that technology is likely to be a key component in making them a reality. Now is a good time to start using technology to help you meet your financial goals if you haven’t already.
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