HEDGE FUND RISK MANAGEMENT AND REGULATION CONCERNS RISE
These issues could also be impacting successful fundraising
All funds plan to boost spending on risk management over the next two years
More than half believe regulation challenges will rise over the next three years, Beacon Platform Inc. study shows
London November 12th, 2024 Hedge funds are boosting spending on risk management as concerns about navigating regulatory challenges increases, new global research* by Beacon Platform Inc. shows.
Almost all (99%) of the hedge fund executives questioned in Beacon’s study in the US, UK, Germany, Switzerland, France, Italy, Sweden, Norway, and Asia say their fund will increase spending on risk management over the next two years.
More than half (56%) of the executives, whose funds are responsible for a collective $901 billion assets under management, say spending on risk management will rise by 20% or more, the study by Beacon, the open and cross-asset portfolio analytics and risk management platform for hedge funds, found.
The majority are concerned about their ability to navigate regulatory challenges – around 56% say that will become harder over the next three years although 39% expect the pressure to ease. C-level executives were almost twice as likely to think that regulatory challenges would become harder (73%) than their Investment Analyst or Portfolio Management colleagues (38%).
Transparency was identified as a major issue in the study – around 90% questioned admit transparency provided to clients and investors has to improve with 23% saying it has to improve dramatically.
Regulators are seen as the main drivers behind greater data transparency although industry trade bodies and hedge funds themselves are also pushing for increased transparency. Beacon, a portfolio analysis, risk management, and development platform that enables capital markets firms to increase the transparency and efficiency of their operations, notes that improved transparency helps hedge funds to attract investment and scale their business.
The research found hedge funds are generally happy with their risk management systems but identified some areas of concern. Around a third (33%) said their fund’s systems were only average for latency – the ability to get complex calculations within an acceptable time frame – and 30% said it was only average for accuracy (the ability to mark to market and use industry standard models for all products) with 5% saying its was poor.
Around a fifth (22%) said their systems were only average for transparency, with 6% saying it was poor or very poor. More than a quarter (26%) said their systems were average for flexibility, with 2% saying it was poor. More than four out of five (82%) who rate their system as poor plan to replace it in the next 12 months, while 65% will use more systems to compensate for their system’s weakness.
Investment in systems has paid off for funds doing it – around 55% who say visibility of risk at their fund has improved over the past two years attribute that to greater investment in technology, while 47% attribute improvements to greater use of specialised third parties.
Asset Tarabayev, Chief Product Officer at Beacon Platform Inc. said: “As regulatory challenges increase and clients demand greater transparency, our research shows that hedge funds are gearing up to respond to these concerns. Spending is expected to grow across the sector as funds look to leverage the advanced reporting features of modern risk management and portfolio analysis systems to improve transparency for investors and regulators alike. Technology-leading funds are already benefiting from these advanced technical capabilities, increasing the transparency of analytic models, accelerating their time to compliance, and delivering real-time views of risk limits and exposures.”
Notes to Editors
* Beacon Platform Inc. commissioned independent research company Pure Profile to interview 100 senior hedge fund executives in the US, UK, Germany, Switzerland, France, Italy, Sweden, Norway, and Asia collectively responsible for $901 billion assets under management. The research was conducted during August 2024 using an online methodology.
For more information please contact
Phil Anderson at Perception A on 044 7767 491 519
About Beacon
Beacon is a financial technology firm that provides everything quantitative developers need to rapidly build, test, deploy and share trading and risk applications, analytics and models. Developed by a team with unmatched financial markets experience, Beacon’s open platform includes the apps, tools and infrastructure firms need to migrate their software and infrastructure to the cloud, manage risk across all asset classes, and focus on building innovative strategies that provide a competitive edge. For more information visit www.beacon.io
