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New Report Shows Hedge Funds Adapting To New Reality

New research from KPMG International and the Alternative Investment Management Association (AIMA) finds that hedge funds are preparing to emerge from disruption caused by the coronavirus pandemic more resilient, adaptable, diverse, efficient, and productive.

The report, Agile and Resilient: Alternative investments embrace the new reality, surveys 144 hedge fund managers globally, representing an estimated US$840 billion in assets under management (AUM). The survey was conducted in real-time throughout the pandemic and the report also includes one-on-one insights from key players across the industry.

The report touches on numerous themes. In terms of human capital, hedge funds have continued to make strategic hires, with the new decentralized nature of working creating opportunities for managers to reach outside of their normal captive locations in the search for new talent. Fifty-seven percent of all managers said they have either hired or are actively looking to hire new talent since the pandemic began. Many firms continue to enhance their culture, prioritizing the mental health and wellbeing of employees. Almost two-thirds, 61 percent, see the flexibility gained by employees working remotely as a positive with 46 percent highlighting the benefits to employees of commuting less.

Operations-wise, 71 percent of respondents cited the success of operating in the current remote working environment as a catalyst to increase outsourcing operational and technological solutions to improve efficiency, generate cost savings and manage margins more effectively. More than 80 percent of respondents are investing in their digital infrastructure and IT capabilities. Half of all firms say they are investing in cyber security measures with one-in-three firms saying they are building a central data warehouse to facilitate data analysis and reporting. Firms are taking a flexible and collaborative approach to developing their return to office plans, with the need to modify physical workspace (64 percent), train staff on new protocols for hygiene, sanitization, etc. (44 percent) and commuting concerns (42 percent) identified as key issues.

With face-to-face meetings now all but impossible, 58 percent of hedge fund managers say they are optimizing their use of digital tools (such as video conferencing and data rooms) to improve their IR model. The flexibility and increased frequency of virtual meetings is benefiting both investors and managers and has levelled the playing field between investors and managers of all sizes.

Like most businesses, hedge funds are having to make tough decisions to manage their business more efficiently through this period. More than 25 percent of respondents say they have plans to increase efficiency by investing more in technology.

Fund managers are planning for both opportunities and ongoing disruption. One-in-five respondents see this as a time to redefine business models. The COVID-19 experience has shown them to be able to reinvent their business and operating models pointing to a hedge fund industry that is more agile and resilient.

“The hedge fund industry has been innovative, agile, and resilient through the pandemic, and our survey bears this out,” said Andrew Weir, Global Head of Asset Management, KPMG International. “Our research shows that a good number of hedge funds see this as a time to attract new talent to their firm. They are evaluating their existing operating model and adjusting their core processes, cost structures and work environments so they are positioned to grow and meet the changing needs of investors.”

“Ultimately, hedge funds will find the right balance of a more decentralized environment with the necessary face to face interaction in the office,” said Joseph Fisher, Senior Partner, Asset Management, KPMG in the US. “The ability to collaborate will unquestionably be a prime consideration as firms continue to adapt to the new reality.”

“The COVID-19 experience has proven that hedge fund managers operations’ and their ecosystems are robust and fully adaptable, even during the most severe of lockdowns,” said Tom Kehoe, AIMA’s Global Head of Research and Communications.

“This environment has created new opportunities for hedge funds; catalyzing industry actors to adapt to a new reality,” added Kehoe. “Investment in smart sourcing and enabling hybrid working practices will not only improve efficiency but also prioritizes employee wellbeing. Ultimately this should benefit an industry that will emerge stronger and more diverse to sustain its future growth.”

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