Top Hedge Fund Industry Trends 2020
What’s the Essence of Data Analytics in Hedge Funds?
Hedge funds involve a higher level of complexity than other funds. As a result, hedge funds require more analytical prowess to address the complexity as well as asymmetric returns. Further, hedge funds analysis is not alien to the rapid expansion of data in the past few years. The complex hedge fund operations can be managed via advanced data analytics. Such an analytics solution will consider a number of aspects that can impact the performance of the hedge fund. The data analytics will also help to unite the large amounts of consumer and public data with numerical optimization.
Hedge funds are evaluated for both relative as well as absolute return performance. While the above evaluation is also done for mutual funds, the process is complex for hedge funds as there a variety of strategies whose effectiveness may differ based on the uniqueness of the hedge funds. For instance, absolute returns enable the investor to categorize the fund in comparison to the more conventional types of investments. Absolute returns are also known as total returns that monitor the loss or gain experienced by a fund. On the other hand, relative returns enable an investor to estimate a fund’s attractiveness as compared to other investments. Determination of performance over certain timer periods like five-year annualized returns is the key to evaluating relative returns. Therefore, an advanced analytics solution is much needed to capture the above complexities associated with hedge funds.
Data analytics is largely used for quantitative funds. Quantitative funds or quant funds select securities by using the capabilities of the latest quantitative analytics. While analysts and investment managers comprise the major part of the team along with traders in standard hedge funds, quant hedge funds require additional talent in programming and quant. Such a team might include programmers and statisticians who develop analytical tools to help the traders. The main objective of the analytics solutions is to assist the traders in unraveling patterns, signals, and correlations that can enable them to outperform the market.
While analytics is an important aspect of trading, its essence can be largely felt in hedge fund management. Data-driven analytics solution will allow the hedge fund managers to beat the market to gain better returns.
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Risk Assessments to Manage Hedge Funds:
Hedge funds experienced a slow year, and a decline in profits is expected to squeeze bonuses for senior and mid-level investment professionals by large extent even though higher management fee revenue from assets under management. This low performance is forecasted to affect the hedge funds growth and also assets under management in the year 2019.
According to the eVestment Hedge Fund Asset Flows report, investors uplifted an added investment $6.68 billion from funds around the world. As the hedge industry did not make it up to the mark year in 2018, the investors are less likely to invest in the hedge funds this year. Also, the recruitment of senior investments professionals is expected to reduce in number. As there are no separate formulaic portfolios for the single-manager large hedge funds, so the bonus compensation may go down significantly. Furthermore, the bonuses at mid-level professionals are expected to be down.
Compensation for junior investment professionals in larger firms is not going to be much affected. Bonuses may see a slight cut down if there is a negative incentive. If the incentive fee is definite, bonuses are projected to go up by a few percents.
The secrets to hedge fund management is often driven by large investments in research and development and are sympathetic to the need to protect the investment. Investors need transparent and secure ways to invest in the hedge fund significantly. In some critical respects, managers want opacity. Therefore, standard data from the broker to the investor must be created. The fund administrators must standardize the risk assessment units as part of the screening. Preqin, a UK-based financial data, and information providing company predict that the hedge fund industry is growing fast at a CAGR of 31 percent and by 2023, is expected to reach a market value of $4.7 trillion.
While hedge funds offer an appropriate solution for the algorithmic B2B market, the Robo-advisors entry into the hedge fund industry has made algorithmic trade easily reach individual investors with self-managed portfolios. These automated trade solutions select individual stocks on the basis of personal risk profiles.
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