In 2023, the hedge industry saw the weakest net capital flows for hedge funds since 2013, according to SS&C GlobeOp's Capital Movement Index. These economic headwinds continue exerting immense margin pressure on hedge fund managers as we move into 2024.
Hedge fund managers who face fee compression themselves have in turn cascaded the pressure down to their service providers. As a result, the majority of hedge funds’ administrative work has moved work offshore for labor cost arbitrage (e.g., India, Philippines, etc.). According to Hedgeweek’s recent survey, this is even more the case for Asia, with 50% of Asian hedge fund firms planning or considering an increase in outsourcing, compared to the global average at 34%.
Cost, complexity and innovation
In the past, cost optimization has become a primary consideration for outsourcing and remains a key driver today. Outsourcing will still be a preferred approach to manage costs, but also for larger funds to innovate and diversify into new strategies and asset classes more quickly and with more flexibility. Yet, some might argue that the industry is near the tail-end of that in terms of what work can be moved and what cost-savings can be had. But there is another major consideration to outsourcing—acquiring a competitive edge in innovation.
While fund strategy and structure have become ever more complex, innovation has become another key driver of outsourcing as a sophisticated way to manage costs and diversify into new strategies and asset classes to stay competitive. However, sophisticated doesn't mean complicated—this is how we view end-to-end hedge fund technology at SS&C. Imagine if you could manage a wide spectrum of asset classes and multi-currency portfolios on one intuitive system. Real-time data, intelligent automation, comprehensive reporting and automated workflows of your operations are all integrated and at your fingertips.
In late January, SS&C is privileged to be able to speak on this topic at the upcoming flagship HFM APAC COO Summit 2024 in Macao, along with several industry heavyweights. Contact us to learn more.
Topic: “Fees down, costs up & balancing global tensions: Assessing the hedge fund operations landscape for 2024”