Just 46% of European hedge funds plan to increase IT spend of across 2016/17. That makes Europe the only region globally that is expected to see a minority of firms boosting IT investment. Yet with 43% of them planning to outsource technology – compared with just 25% in the US and Canadian markets – it appears that alternative investment managers are seeking to lower costs.
Research by Aranca, supported by FIS, suggests that a key for funds seeking to attract investors in Europe is trust. The proportion of investors looking for risk reduction through investment via a hedge fund is considerably higher in Europe (73%) than in America (54%) or Asia Pac (14%).
One respondent noted “We are looking at either outsourcing or buying technology to be able to simplify processes.” It suggests that in Europe investors are seeking to reduce their risk by investing in hedge funds and key to attracting that investment is due diligence supported by simplified technology.
Streamlined technology and processes with flexible multi-asset capabilities is preferred by most respondents. The research highlights that out of the top five trends and strategies that funds can offer, equities was named as important by the largest proportion (65%) in line with other regions. Multi-strategy was second (45%) and commodity trading advisor (CTA) with UCITS both third at 32%. Global was fourth at 30%.
Perhaps not surprisingly, the issue of keeping up with regulatory change was the named as a top three challenge by more respondents (63%) than any other. Europe not only has the UCITs wrapper for funds but also is also in the process of implementing the revised Markets in Financial Instruments Directive (MiFID II) and the European Markets Infrastructure Regulation. Collectively these are providing the continent’s response to the financial crisis by mitigating systemic risk. They are also developing its trading infrastructure for securities and derivatives.
The Alternative Investment Fund Managers Directive (AIFMD) was named by most participants (73%) as having the greatest impact over the next two years, followed by MiFID II (59%) and UCITS (57%).
Following several delays, layers of development and negotiation, keeping track of these developments has been challenging to most of Europe’s financial services firms. The level of reporting is considerably higher than has ever been required before and 22% of funds expect investment to increase most in the next five years. The level of in-house management of investor reporting (91%) and middle office processing (77%) is understandable on that basis.
European funds marked down the importance of risk management solutions when investors were conducting due diligence by ten percentage points when compared with their US counterparts, suggesting the pressure to maintain some technology in-house is more of an issue on the westerly side of the Atlantic.