Creating competitive advantage in the hedge fund sector | KPMG | AU
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Creating competitive advantage in the hedge fund sector

Creating competitive advantage in the hedge fund sector

Hedge fund managers are leveraging technology to improve front, middle and back office.


National Sector Leader, Asset & Wealth Management and National Leader, Customer, Brand & Marketing Advisory

KPMG Australia


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Boat race

Hedge fund managers are confident in the maturity and competitiveness of their technology. And many indicate that they are already leveraging technology to improve a wide range of activities in the front, middle and back office. The leaders are demonstrating that technology can deliver value in almost every aspect of hedge fund management.

Staying competitive

Hedge fund managers seem rather confident in the maturity and competitiveness of their technology. A third of our respondents say their use of technology in the front office is ahead of the industry average. Thirty-eight percent feel their middle office technology is above average. And 44 percent claim to be either ‘first movers’ or ‘fast followers’ in their use of technology in the back office.

“Clearly, hedge fund managers are bullish about their innovation capabilities, particularly in the back office. But the reality is that not everyone can be ahead of the competition,” noted Rob Mirsky, KPMG Global Head of Hedge Funds. “This data suggests that hedge fund managers may not have a clear understanding of where they sit versus their competitors.”

Putting IT to work in the middle and back office

Given that most managers are hoping to secure operational efficiencies, it is perhaps not surprising that the greatest focus has been on the middle and back office. “We’ve absolutely increased our use of technology across the back and middle office,” noted the CFO at one large fund. “We’re using it to track transactions, improve our accounting and reporting and to help ensure that our managers are accessing the information they need quickly and efficiently.”

For the most part, fund managers expect to see the greatest middle office impact in areas such as process improvement, end-to-end workflow solutions and data analytics. More than eight-in-ten respondents say they expect technology to have a major impact on their middle office data analytics, while 75 percent hope to see technology improvements in their end-to-end workflow solutions. “We’ve seen a lot of focus on technologies that support the automation of processes and reinforce operational control, particularly in areas such as collateral management and, increasingly, newer areas such as cash wire processing,” noted Adam Hirsh, Director, KPMG in the US.

In the back office, managers place the highest importance on improving data management (in particular any measures used to help aggregate, reconcile or report fund data), a critical element to be able to meet the increased regulatory and investor reporting demands. Almost two-thirds of all manager surveyed say that technology will be important in helping achieve their regulatory compliance objectives.

In the middle office, technologies that improve portfolio risk management and data management and analytics are expected to see the most significant levels of investment. “We are automating our standardised reporting and building out our investor data warehouse to improve our reporting and we are planning to develop an investor bridge to allow our investors direct access to their accounts,” noted one large fund manager. “We want to improve transparency and respond to investor demands for access, but we need to be careful about how quickly we move and carefully consider the risks involved.”

Focus on the front office


In the front office, hedge fund managers seem to place higher focus on technologies that improve decision-making and drive investor relations versus those that drive efficiencies. “The front office is where fund managers differentiate – it’s where the alpha is derived – so the focus here really needs to be on technologies that improve manager performance and optimise their processes in that regard,” noted Daniel Page, Head of Asset Management Advisory, KPMG in Ireland. “When it comes to front office technology investment we see less cost sensitivity than we do elsewhere.”

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