Over the next five years, hedge funds are on track for a greater embrace of crypto assets for their investments, and digital overhauls to manage cutting-edge securities operations, according to a survey released in late May by fund administration services provider Intertrust Group, based in Amsterdam, The Netherlands.
The company surveyed 100 senior-level professionals at hedge funds around the globe for its report, “The future hedge fund CFO: Preparing for disruptive tech and emerging asset classes.”
The biggest prediction is that there will be “a major shift” among mainstream hedge funds toward digital assets.
“The overwhelming majority (98 percent) expect their hedge fund to be invested in cryptocurrencies in five years,” according to the survey. “About one in six respondents expect to invest at least 10 percent of their investment holdings in crypto and on average they expect to invest 7.2 percent. In North America, Europe and the U.K., all respondents said they expect to invest at least 1 percent of their portfolio in cryptocurrencies. And in North America, on average they expect to invest 10.6 percent.”
The move to digital assets also means that “distributed ledger functionality features so high on the list suggests respondents expect this technology to become more mainstream over the next five years. … Blockchain, the distributed ledger technology used by bitcoin, was named by 31 percent of hedge fund CFOs [chief financial officers] in a later question in the survey as having the most potential to be a game-changer for hedge funds,” according to the survey.
At the same time, these internal digital pushes will have many ramifications for hedge funds such as:
- “A growing demand from investors for more frequent reporting updates, with 42 percent of respondents anticipating a need for daily or even live reporting. This has huge implications for the day-to-day running of hedge funds, and CFOs know they need to assess their options;”
- “More than half of respondents (57 percent) believe analytics and artificial intelligence (A.I.) have the most potential to streamline operations. Data aggregation (52 percent) and robotic process automation (48%) also topped the list.”
This unusual, dual embrace of a digital future will force the outsourcing issue for many hedge funds.
“Outsourcing these solutions can alleviate the burden during this transformation; more than a third of respondents (38 percent) say they plan to outsource certain functions to specialist service providers, including the investment function (43 percent), investor relations (42 percent), and tax (40 percent),” according to the survey.
“Hedge fund CFOs said the areas they expect their in-house finance team to outsource expertise are tax (40 percent), operations (40 percent), investor relations (42 percent), investment function (43 percent), technology (39 percent) and accounting (31 percent).”
Hedge funds will still be hiring for in-house functions – 60 percent predicted that they will be hiring to fill operations positions.
“Hedge fund CFOs highlighted four actions they would consider taking to respond to this increased demand for information: investing in technology (65 percent); increasing their in-house finance team (60 percent); investing in distributed ledger technology (47 percent); and outsourcing functions (38 percent),” according to the survey.
While much can happen in five years, hedge funds are not sitting still – approximately 74 percent feel the need to act. “Only 26 percent expect to stick to the status quo and retain the existing balance between in-house and outsourcing,” according to the survey.
The full report can be found here: https://bit.ly/3wc9hby