Hedge funds in Asia are forging ahead with disruptive innovation and improved technology. The enablers for hedge fund performance growth in Asia Pacific are perceived to be aligned with those of hedge funds more globally, but with nuanced differences. New research by Aranca, supported by FIS, indicates that the emphasis on key drivers – disruptive innovation (59 percent), changing investor demographics (53 percent) and investment in improved technology (35 percent) – is higher than in other regional markets. In part that reflects the exciting potential for new entrants into the region. Growth from customer acquisition and market expansion is expected to be 52 percent in APAC, higher than the average, while the requirements for client service and compliance are lower.
Given the extent to which disruptive innovation is seen as a key driver, entrenched firms will need to ensure they have the adaptability to handle new models and strategies as they gain traction, meeting the demand for improved IT. Smaller firms will need the ability to launch with a flexible cost base but using technology that can handle the new, dynamic approaches that underpin disruptive innovation.
Although Asia doesn’t have the same proportion of large scale established funds that are found in the U.S. markets and to a lesser extent in Europe, investors are becoming more willing to invest in alternative funds. This trend is reflected in other data. For example, investment in exchange-traded funds (ETFs) is far higher an enabler in APAC (27 percent) than elsewhere (11 percent for the U.S. and 17 percent in Europe), but this outlier may well reflect the need for access to multiple markets, many of which controls access to securities and currency. ETFs allow investors to get access in hard to reach markets without navigating the operational challenges around execution.
From a technology perspective, there is a huge drive for efficiency (78 percent) and cost reduction (53 percent) is significant among APAC respondents. There is also demand for investor due diligence (41 percent) which is far closer to responses in Europe than it is in the U.S.
The need for trust is not based on regulatory demand, as is more probable in Europe, given the range of jurisdictions in that region. Outsourcing is largely expected to be focused on technology (47 percent) where the greatest potential in the U.S. exists in the middle office (69 percent).
Alternative fund managers and administrators in Asia Pacific have a more developing landscape to move into than those in Europe and the U.S. from a competition perspective. However the regulatory burden can be more challenging in places. In order to combat these challenges Asian hedge funds are turning to technological capabilities as enablers of relief from operational pressure, in turn driving IT change amongst hedge funds.
The OTC nature of the markets is apparent with just 48 percent reporting trading technology in place, against technology for risk management (71 percent), portfolio management (76 percent), and market data and portfolio accounting/reporting (76 percent). Investment in independent evaluation systems (67 percent) is more on line with Europe (70 percent) than the U.S. (42 percent).
Collectively funds in APAC can be seen as more pressured, less mature and therefore in greater need of efficiency than many of their U.S. and European peers, in order to match the stresses of running across multiple countries and continents.
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