Hedge Funds: An Appetite for Data

No one in the hedge fund industry would challenge the proposition that data is a crucial factor in meeting these primary hedge fund manager objectives:

  • Investor transparency with respect to risk and performance
  • Accurate and timely compliance information for regulators
  • Adherence to operational best practices to enhance performance

The challenges of sorting, storing and utilizing the wealth of data generated by a hedge fund are among the most formidable that hedge fund managers confront today.

Managing the Avalanche

HF-DataAs the amount of data collected snowballs, it is becoming increasingly difficult to avoid being crushed under the weight. Smaller funds are the least able to confront these obstacles and have turned to various enterprise software firms for help. Smaller funds simply do not have the in-house resources necessary to deal with mountains of data. The days of relying on spreadsheets to manage this data crush are solidly in the rear-view mirror.

Excel pales in comparison to advanced data discovery systems. It is clear that a hedge fund’s competitive edge may well reside within its advanced analytic capabilities. Thomas H. Davenport, professor of IT and Management at Babson College and research fellow at the MIT Center for Digital Business is convinced that, “Decision making techniques and technologies will be the next competitive battleground.”

Data management solution providers have sophisticated systems which centralize, cleanse and place controls on critical data.

What Are the Options?

Hedge fund managers primarily have three options, largely driven by these two factors: a) the size (assets under management) and strategy of the fund, and b) competitive considerations.  Large funds with complex strategies would almost always opt for handling the entire data management process internally. Intermediate and smaller sized funds may opt to outsource regulatory reporting but retain control of data cleansing and critical oversight processes in-house. Other hedge fund managers may prefer outsourcing the entire data management and reporting functions.

The Major Obstacles to Outsourcing

Hedge fund managers are, by nature, cautious and circumspect individuals. Trading strategies and security allocations are typically held “close to the vest” which makes the release of such data to third parties a thorny issue. The second hurdle will be the hedge fund’s Chief Compliance Officer, who instantly recognizes that the asset manager retains legal liability, not the vendor.

One thing is certain. Complex strategies, increased regulatory burdens and heightened competition will force hedge fund managers into difficult decisions with regard to the efficient and comprehensive data management.

What about Jobs?

If you have had only marginal success in crossing the threshold of hedge funds, employment with a data management firm may provide a “back door”. Consider the opportunities for employment with firms like GoldenSource, Asset Control, Confluence. MIK Fund Solutions, and similar firms. Six figure positions are available and jobs in firms that offer services to the hedge fund industry have the potential to create enviable networking opportunities.

While this alternative approach for attaining the goal of hedge fund employment is not for everyone—it may work for some.

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