How technology can give you the edge as you grow your fund

Last week, we participated in a webinar at HFM’s European Technology Forum. I spoke on a panel with Michael Fastert, COO and CLO at TIG Advisors, and Doron Gutstadt, CTO of Taconic Capital. Read on to get a snapshot on:

  • How more people in the front office are now technologists themselves – how can you better get data to them to enhance their decision-making capabilities and reduce the possibility for error
  • How to encourage innovation when the majority of the office is working remotely
  • Why legacy technology is one of the biggest hurdles hedge fund technology teams have to overcome
  • How a growing number of data scientists are driving alpha using technology
  • The recommended approach to get buy in from founders
  • Why now is a great time to be a technologist in a hedge fund

Hedge funds: Taking a collaborative approach to driving technology decisions

In our webinar poll of hedge fund CTOs and COOs, a collaborative approach was overwhelmingly identified as the most effective way to drive technology decisions:

  • 38% collaborative approach
  • 29% front office
  • 29% CTO/ technology team

Takeaway: The operational efficiencies that can be achieved through technology has always been strong – look at how technology teams drive this through process operation. Today, most people in the front office are now technologists themselves – they are the people who make complex investing decisions. They look at an entire universe of investment opportunities and whittle them down based on an increasingly large number of data points. The more a technology team can get that data to them in a structured and efficient manner, the more you make them productive and tighten the loop under which they can make good decisions and reduce the possibility for error.

Encouraging innovation in a remote working culture

Takeaway: Innovation happens in small increments; it doesn’t take place with a big bang. If you build a culture where people are willing to take the right kind of risks to get there, whether you are at home or the office should make no difference. There is nothing new with working from home in terms of people’s appetite for technology. Whilst some firms are seeing slight drops in productivity with an increasing amount of time spent on video calls, working remotely hasn’t tended to impact innovation.

Legacy technology seen as the biggest technology hurdle to overcome

In our second poll, the audience identified supporting legacy technology as the main hurdle to overcome in the short term.

We asked the audience the following: What technology hurdles do you see in the near-future?

  • Supporting legacy technology – 1st priority
  • New regulatory data and reporting requirements - 2nd priority
  • Internal buy-in for new technology – 3rd priority
  • Moving to the cloud - 4th priority
  • New instruments/asset classes to support – 5th priority

Takeaway: It is no surprise the challenge to support legacy technology is top of the list as most funds are impacted by this at some point. The good choices we make today could look bad in 10 years’ time just as the decisions made 15 years ago to work with platforms that don’t support API connectivity are under review today. The ground is constantly moving beneath you in technology so you need to build systems and processes in a way that they can adapt. We are seeing the market move towards solutions that provide core functionality needed today with extensibility through open APIs and a marketplace of add-ons. That approach means all company stakeholders win as the cost of infrastructure, implementation, maintenance, and expanded functionality are driven down. It’s also crucial to have the right culture and strategy in place to deliver short-term value and long-term return on investment.

Growing number of data scientists driving alpha using technology

Takeaway: A lot of people we speak with are data scientists analysing data that doesn’t only come out of a PMS or accounting engine. The days of flush and fill are long gone. They need fundamental data, economic data, alternative data and they need to able to efficiently associate that with all of the entities they are interested in. Years ago, those sorts of techniques used to be deployed by a small group of scientists in the firm running regressions. Today, it is everybody with a code book and the ability to script in python attempting to drive value from diverse data sets.

Now is a great time to be a technologist in a hedge fund

Takeaway: CTO and equivalent roles have the chance to set the agenda and drive real value for their clients. Now there are such great tools to be used, technologists can really create underlying performance for their investors. There are several approaches to get buy in from founders - start small and build a cohesive strategy with a solid plan behind it. Focusing on quick wins to generate value to the business which demonstrates delivery means you can add more features and more value over time. Balancing short term deliverables against long term return on investment is a delicate act. A large part of this comes down to the relationship the technology team has with the rest of the firm and the credibility it has across the fund.

To find out more about these topics, check out the webinar in full.