2016
was a phenomenal year for the hedge fund industry. There has been a lot of
chatter among hedge fund managers and investors about the industry. Some
financial analysts think 2017 will bring more chatter and clatter as major
changes are more likely to happen. World-renowned financial advisory services
firms like KPMG, EY, PwC, and Deloitte have researched and produced reports to
highlight the key developments in the hedge fund industry. Among the many
highlights made, the following three issues reflect the changes
happening in the hedge fund industry
today.
1.
Increased rotation of assets
Over
the past few years, many hedge fund managers have been faced with the challenge
of declining performance of asset classes. However, not all managers performed
poorly probably due to having different strategies.
Most
of the hedge fund managers with poorly performing assets are experiencing
investor withdrawals. Some may be forced to close down. This scenario is
resulting to re-circulation of assets within the industry. Some investors are
reinvesting with better-performing managers, while others are seeking new
strategies that resonate with current market valuations and economic forecasts.
This means many investors will also be considering repositioning their
portfolios.
There’s
an increasing interest in other assets such as pension funds. Many hedge
fund managers are considering pension plans as a good opportunity for growth.
In addition to this increased interest, there is more pressure from the pension
funds side. Many pension funds are out of options investment-wise and are
considering other types of investments. Coincidentally, hedge funds are a great
option for pension funds.
2.
Globalization and its implications
Globalization
is a current trend in all industries in the financial sector. New markets,
investors, and competitors from different parts of the world are venturing into
the hedge fund industry. This is a trend that no manager would dare to ignore.
As more hedge fund leaders go global, the asset managers are busy working out
how to cope up with the operational, tax, and regulatory challenges presented
by globalization. For investors, globalization has caused more good than bad.
They have a larger number of managers to choose from. However, they need to gather
more information about new entrants into their ‘normal’ market to ensure they
invest with reliable managers.
3.
Major disruptions
The
hedge fund industry is built on disruption. The major geopolitical disruption
of 2016 was China. The fall of energy prices also sent a tide through the
entire financial sector, the hedge fund industry receiving a significant blow.
The effects of these two disruptions are felt even today. There isn’t an
accurate way of predicting potential disruptions. In 2017, geopolitical disruptions
could be the U.K, U.S, Russia, Syria, or any other country.
Another
major disruption that has started affecting the hedge fund industry is
technology and digitalization. For a long time, the industry has somehow seemed
as though it’s shielded from technology-led competition. Today, Artificial
Intelligence has already developed roots in the industry. Regular operations
such as trading and execution are slowly being automated. In future, we might
see robots replacing human capital in such functions.
Change
is happening in almost all facets of the hedge fund industry. Both managers and
investors are being affected by the changes and it’s important for all players
to brace themselves for what the future of hedge funds will offer.
