Hedge Funds turn to technology to cope with pain points and strain of lower margins

Mumbai: Traditionally, IT vendors have had limited scope to service the lucrative world of the hedge funds, but increasing exposure and regulation are forcing this industry's participants globally to look to technology to ease some of their pain points.

This is according to a new report by independent market analyst Datamonitor, Securities Processing in Hedge Funds. It predicts global hedge funds' investment in IT will reach $3.3 billion by 2009. The report, which investigates the technologies being demanded by this industry to cope with new market developments also, reveals opportunities for technology vendors are not restricted to the global hedge funds industry alone but also to service providers such as prime brokers and fund administrators.

The report provides an overview of trends across the global hedge fund industry as well as the actions the major participants are taking to address these issues, both at a business and at technology level. The report also forecasts detailed hedge fund and prime brokerage spend by region until 2009.

"The evolution of the hedge fund sector is somewhat inevitable. Hedge funds globally will look to use technology to improve execution capability in the front office as they seek competitive advantage", says Nii Barnor, financial services technology analyst with Datamonitor and author of the study. "In addition, service providers need to raise the bar too by offering enhanced reporting functionality and superior connectivity to clients."

Hedge fund industry set to provide new opportunities for IT vendors to target
Despite having a relatively poor year in 2004, the global hedge fund industry has rebounded strongly. Datamonitor expects the global market to reach approximately $1.9 trillion in assets under management by 2009.

Hedge funds are beginning to resemble traditional asset managers by placing cost control and efficiency higher in their priorities, as despite the market growing in size - large number of start-ups entering the field, there have also been numerous instances of funds collapsing due to the competitive pressures in the industry.