Hedge fund firms are embracing artificial intelligence and responsible investing to keep pace with client demands.
A new paper published by the Alternative Investment Management Association, which represents alternative money managers around the world, found following a series of conversations with 25 figures in the hedge fund industry that these firms are rapidly transforming their strategies and operations to meet the changing needs of investors.
"The hedge fund industry was born of disruption," the paper said. "Hedge fund firms have always been at the forefront of investment, embracing change and constantly innovating in order to deliver superior returns to their investors. We live, however, in an era of profound disruption."
The paper said there been doubt over hedge fund firms' ability to adapt to economic and social megatrends around the world.
"The hedge fund industry leaders with whom we spoke recognize the challenges they face. They know that they will have to embrace innovation in order to survive. They will need to harness artificial intelligence and respond to public opinion; reach out to new investors and offer new solutions to existing ones," the paper said.
The paper said different forms of responsible investment are "now increasingly becoming more widely adopted across the hedge fund industry. Today's investors expect their investments to reflect their values and to account for long-term environmental risks; hedge fund firms are responding to investor demand." It said new technology is enabling the integration of responsible investment at a low cost. "While not every hedge fund firm will adopt responsible investment in the near future, the confluence of investor demand, improving data and technological capacity will likely push more managers to offer their investors a greater level of responsible investment opportunities," the paper said.
The paper also found that succession planning is becoming "more common in the industry."
Interviewees, who represent assets under management of more than $500 billion, also discussed fees; employee diversity; and alpha, smart beta and alternative beta-based strategies. The paper is sponsored by Aberdeen Standard Investments.
Among those interviewed were Leda Braga, founder and CEO of Systematica Investments; Luke Ellis, CEO at Man Group; and Sir Michael Hintze, founder, CEO and senior investment officer at CQS.