Catching the Next Wave

I like to spend Fridays catching up on surveys and reports from earlier in the week. Such is the life of a financial technology journalist.

Today it was Citi Prime Finance's benchmarking survey about hedge fund IT spending that caught my eye. The report goes into detail about how annual hedge fund IT spending has grown to $2.09 billion.

Sibling publication Hedge Funds Review already did a fine job of breaking down this report, but I'd like to focus on what Citi calls, "a new, third wave of hedge fund technology investment [that] is beginning to form."

Citi says that fund managers are starting to work with specialist vendors to build "unified data management platforms that consolidate the fund's reporting capabilities across formerly disparate functions."

While this new “wave” has yet to take off, Citi predicts it will soon become a considerable beneficiary of tech spend as "specialty consultants spread best practices across the industry." The new investment, Citi says, will “harness information and create insight."

I find this a bit jarring—did it really take a monumental economic collapse for the industry to realize that technology can be used to create insight into the information these hedge funds are compiling?

Citi also discussed the emergence of cloud computing in the hedge fund space, and noted the larger pool of vendors that focus almost exclusively on the hedge fund space.

In terms of the build vs. buy debate, investment decision-making support tools, risk management and compliance platforms were all areas that were most likely to be handled in-house, according to the report, which states: "These are the areas where hedge fund managers are still looking to align standard industry offerings to their more complex investment strategies and specialized portfolio needs or, in the case of compliance, adjust to rapidly shifting regulatory mandates."

Citi says portfolio management, trading, and customer relationship management (CRM) and marketing platforms were areas where hedge funds were more likely to go out and buy a solution. "These are the platforms that are either the most generic (CRM) or that have become the most fully aligned to the specialized needs of the hedge fund industry (trading and portfolio management),” the report states.