Nearly all hedge fund managers expect technology to have an impact on their industry's competitiveness over the next five years, but the results of a survey released Thursday show that a good number of managers lack conviction about the efficacy of its application.
More than half — 56% — of survey respondents said technology will have “some impact” on competition; 38% said it will have a “significant impact;” and 6% said it will have “negligible impact,” according to a survey of 100 hedge fund managers co-sponsored by KPMG International, Alternative Investment Management Association and Managed Funds Association.
The survey report, “Transformative change: How innovation and technology are shaping an industry,” found through a multiple choice question that the top reasons for investing in technology were improved controls and compliance, 90%; efficiency, 88%; meeting investor expectations, 51%; improved competitiveness, 48%; cost reduction, 47%; and reduced complexity, 42%.
“The front office is where fund managers differentiate — it's where alpha is derived — so the focus here really needs to be on technologies that improve manager performance and optimize their process,” said Daniel Page, head of asset management advisory at KPMG, in the report.
Disruptive innovations such as artificial intelligence, predictive analytics and automated trading are three areas of front-office processing in which hedge fund managers are interested, but uptake to date by managers is not large, survey results showed.
For example, 32% of hedge fund managers interviewed said they already are using predictive analytics to identify investment opportunities, but 27% of respondents said they don't expect these analytical processes will play any role in their trading strategies. Forty-two percent said they are unsure of the value of these new approaches.
When it comes to how artificial intelligence and associated machine learning might affect how they manage their hedge funds, respondents expressed less conviction: 42% said the impact will be low; 40% expected a medium impact; and only 18% predict that the effect will be large.
Further, only 7% of survey respondents expect new automated trading strategies will have a “massive impact” on hedge fund returns over the next five years. A majority (67%) of respondents admitted they think auto-trading will have “some impact” on performance; 25% expect “negligible impact”; and 2% said they think it will not have an impact.