The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

A Third of Hedge Funds Have Invested in Automation to Improve Pricing, According to Omgeo Survey

A third of the 50 hedge funds involved in a recent survey commissioned by Omgeo and conducted by Greenwich Associates have invested in improving their valuations and accounting systems, with many more focused on reducing counterparty risk. The fallout from the financial crisis and the intense regulatory and client scrutiny of the hedge funds market has inspired these funds and their managers to invest in their technology infrastructures to improve their risk management and transparency, according to the survey.

A desire to restore trust and confidence in the hedge fund sector, along with the desire to keep the regulatory community off their backs, seem to have combined to compel these firms to invest in new technology, particularly around risk management and pricing. Key areas for investment by these North American, European and Asian funds are around automating reconciliation, cash management, collateral management and pricing, says the vendor.

The majority of respondents, at 70%, have altered their operations to reduce counterparty risk and 40% of the managers have taken steps to enhance reporting and increase transparency for investors, according to the survey results. More than two thirds of the hedge funds participating in the survey believe operational improvements and automation have a direct and positive impact on their ability to attract investors and assets.

“Better routines and work practices have helped us provide transparency to our clients, which gives investors additional confidence in us,” said one North American respondent.

Matthew Nelson, director of market intelligence at Omgeo, reckons this is proof of a growing trend within the hedge fund sector: “This study highlights something we’ve been hearing for some time from our own hedge fund clients: today it is absolutely critical for hedge funds to understand their counterparty risk exposure, as this knowledge is imperative to a funds’ ability to attract capital. It is encouraging to see so many hedge fund managers in this day and age recognising how closely operations and counterparty risk are aligned and that such measures are being taken to improve automation in the post-trade world.”

The Omgeo survey certainly corroborates a trend identified by a survey published earlier in the year by investment management solution vendor SEI (also conducted with Greenwich Associates). The survey, which included discussions with institutional investors investing in hedge funds, also indicates that hedge fund managers are being compelled to institutionalise their responses to transparency demands from clients and regulators. More than 70% of institutional investor respondents reported requesting more detailed information from managers than they did a year earlier: proof that pressure is coming from clients as much as it is from regulators.

Data transparency is evidently a key issue across the market and nowhere more so than areas such as valuation methodology and counterparty risk exposure. Both surveys suggest that hedge funds are being forced to invest in their data architectures and data feeds in order to meet these new requirements, much the same as the rest of the market. A-Team Group has noted this trend over recent years in terms of the wider market, as firms adopt a more creative approach to data workflow by adding in more automation and by dual sourcing pricing data.

Related content

WEBINAR

Recorded Webinar: Entity identification and client lifecycle management – How financial institutions can drive $4 billion in cost savings

A new model in Legal Entity Identifier (LEI) issuance has created significant opportunities for financial institutions to capitalise on their KYC and AML due diligence. By becoming Validation Agents and obtaining LEIs on behalf of their clients, financial institutions can enhance their client onboarding experience, streamline their internal operations, and open the door to new,...

BLOG

GLEIF Moves LEI Uses Cases on from Regulatory Compliance to Digital Identity Products

The Global Legal Entity Identifier Foundation (GLEIF) is extending use cases of the LEI beyond regulatory reporting to solutions initially including digital certificates. The first commercial demonstration of LEIs embedded within digital certificates has been made by the China Financial Certification Authority (CFCA), which has also signed up as a validation agent within the global...

EVENT

RegTech Summit London

Now in its 6th year, the RegTech Summit in London explores how the European financial services industry can leverage technology to drive innovation, cut costs and support regulatory change.

GUIDE

ESG Handbook 2021

A-Team Group’s ESG Handbook 2021 is a ‘must read’ for all capital markets participants, data vendors and solutions providers involved in Environmental, Social and Governance (ESG) investing and product development. It includes extensive coverage of all elements of ESG, from an initial definition and why ESG is important, to existing and emerging regulations, data challenges...