Keith serves as Senior Vice President on Arcesium’s Client and Partner Development team, where he works closely with clients to understand their business goals and provides customized solutions leveraging the company’s technology and services. With more than 20 years of experience in prime brokerage and financial technology, Keith brings extensive industry expertise to drive client success and deliver lasting value.
In today’s demanding market conditions, having a competitive advantage as a hedge fund manager is vital.
Competition for investments and investors is fierce, while differentiation within peer groups is subtle. Success is as much built on an accumulation of small improvements driven by analysis as it is on one or two larger changes. As such, data lies at the heart of establishing a sustainable competitive advantage.
Of course, hedge funds can gain an edge by exploring existing data through new perspectives and unearthing fresh insights by incorporating new data sources. Doing this in practice is not without its complexities.
Mounting Data Challenges
Macroeconomic events cause aberrations in data sources and corresponding data analytics outputs, creating decision-making challenges for investors. During the Global Financial Crisis, prime brokers struggled with volatility lookbacks in their margining models. More recently, during Covid, overnight shifts in consumer behavior left investors scrambling for visibility on massive sector rotation.
Furthermore, investors have heightened expectations for more frequent and more precise reporting. As asset managers have expanded in size and complexity, the load on investor relations teams has grown, making it hard to keep pace.
Today’s data challenges for hedge fund managers are manifold, but here are a few key examples:
Addressing Technical Debt – Numerous funds are considering a transition away from past investments in point solutions, which have resulted in data asynchrony as their organizations’ AUM and complexity grow. This shift comes as their existing data strategy has proven to be insufficiently scalable.
Data Volume and Variety – Dealing with the ever-increasing volume and variety of data, both structured and unstructured, can be overwhelming if hedge funds don’t have the proper infrastructure and tools to handle and make sense of their collected data.
Data Quality – Ensuring data accuracy and consistency is a persistent challenge. Poor data quality can lead to poor decision making, and on the investment side, this can lead to big losses.
Data Integration – Integrating and harmonizing data from multiple disparate sources is a huge challenge for hedge funds today. Having a scalable system that can harmonize disparate data into a unified format should be table stakes for any data strategy.
Cost Management – Data storage and, particularly, data processing costs can be substantial. Hedge funds need to optimize their data infrastructure to manage costs effectively.
These challenges have also created an opportunity for the wider market to deliver innovative solutions – dynamic data platforms that allow for adjustments in one place and from a single, synchronized source of truth.
Management firms require out-of-the-box tools that swiftly ingress data, integrate it with existing datasets, maintain data quality, enhance data discoverability, and facilitate effortless analysis and reporting.
Teams need tools purpose-built for the financial services industry that empower them to creatively merge data and manage the influx of new data in various formats, frequencies, and greater volumes. Powerful modeling capabilities and connectivity to counterparties, administrators, and other services are a game-changer in enabling data to move fluidly across an organization. Robust processes are also essential to ensure data quality and safeguard decisions from the influences of flawed data.
In addition, comprehensive governance is indispensable. This governance not only pertains to the data acquired but also extends to the methods employed to derive insights from it and how to regulate access to this valuable resource.
Supporting Innovation
To achieve all this, a hedge fund manager needs an organizationally aligned data strategy. They also need the right data partners.
Service providers are crucial in handling essential yet undifferentiated tasks, allowing hedge fund managers to concentrate on delivering distinctive value. An integrated environment that consolidates all facets of a data platform offers substantial benefits and is a prerequisite for higher-order tasks.
By harnessing an integrated data platform, hedge fund managers can expedite their route to market, attaining distinctive value more swiftly. Service providers can likewise streamline connectivity to prevalent industry sources.
Domain-aware data models, that offer built-in awareness of asset classes, lifecycle events, and geographies, allow investment teams to accelerate data integration and analytics. Investor relations teams benefit from self-service reporting and analytics tools developed on an integrated data platform to help managers meet and surpass investor expectations.
So, yes, having a competitive advantage is vital. But when it comes to infrastructure, hedge fund managers shouldn’t be reinventing the wheel. A manager’s time is precious. It should be spent developing an edge where it really matters – in the front office, using data to evolve the investment strategy and deliver value to clients. Allow others to hone the platform for success.
Hedgeweek interviewed Arcesium’s Keith Raftery for this article.
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