It surely goes without saying that COVID-19 has disrupted businesses of all types. And the Alternative Investment sector has not been immune.
KPMG International and AIMA (Alternative Investment Management Association) surveyed 144 hedge fund managers globally, representing an estimated US$840 billion in assets under management (AUM), more than one-quarter of the industry’s total. The research examines in detail the effects of the pandemic on the alternative investment industry. In addition, KPMG International and AIMA canvassed the views of the industry via one-to-one interviews with Hedge Funds, investors and key ecosystem players including technology companies, prime brokers, fund administrators and law firms to provide additional insights to the survey findings.
Through the various discussions and survey results it highlighted that in times of market volatility and business uncertainty – alternative investments fulfil an important role in an investor’s portfolio. Throughout the pandemic, the Hedge Fund industry has proven its ability to manage risk and volatility while still producing above-market returns for investors.
Significant uncertainty may remain, but in conversations with fund managers and the data suggests the industry remains agile and resilient and is taking prudent steps in order to embrace the new reality.
Top 4 statements to best summarize the Hedge Fund industry during this period of COVID-19 disruption
Performance is a great testimony to the active management industry — it is doing its job of reducing risk and managing volatility
Central bank intervention will continue to define the investing landscape
Market volatility will remain elevated in the near and medium terms
A chance to redefine the business model combining innovative technology within a decentralized environment will transform the hedge fund business model
Source: Agile and resilient: Alternative investments embrace the new reality — KPMG International & AIMA Survey 2020
8 key themes
From talent acquisition and changes to the IR model through to technology investment and cost management, this report provides key insights into how the industry is finding opportunities in a decentralized environment. Below are eight key themes that have been underscored by the Alternative Investment management industry as a result of COVID-19.
Attracting and retaining talent
Nearly 60% of all managers surveyed are hiring or are looking to do so, although remote on-boarding is proving to be a challenge.
Just over 60% of all firms cite the transition to the office as being their primary compliance concern.
Embracing a new reality
Over 50% of all firms have concerns regarding diminished team building/firm culture.
25% believe lack of social interaction among employees has led to poorer mental health.
70% of all firms considering to outsource, given their success in being able to manage the business remotely.
60% of firms are moving to a variable cost environment to allow for more flexibility.
Innovating the IT environment
Over 80% of all firms are investing to improve their digital capabilities and IT infrastructure.
1 in 2 firms are re-evaluating their cloud capabilities, and the same percentage are investing to improve their cyber security.
40% of all firms are outsourcing their IT/technology.
Returning to the office
Almost 2/3 of all firms cite having to modify their physical workspace as being the number 1 issue as they consider a return to the office.
40% of all firms cite commuting concerns on the part of their employees, albeit not as significant for Asia-Pacific firms.
Investors Relations 2.0
Almost 60% of firms are optimizing the use of digital tools to support their IR function.
1 in 5 have enhanced transparency and risk reporting of underlying funds.
Driving for efficiency
When asked how they are managing margin compression, Approximately 1 in 3 firms are investing in more technology to save on costs and increase productivity while 1 in 4 firms are increasing productivity across the firm.
Planning for the future
1/3 say they expect Central Bank interventions to continue to define the investing landscape going forward and expect market volatility to remain elevated in the near and medium-terms.
12% expect to see an acceleration of operational transformation in their middle and back office.
6 key takeaways
Of course, the biggest question on Hedge Fund managers’ minds is what the future holds. Unfortunately, there are no certainties and much depends on the course of the virus and its related impacts on the economy, investment activity and asset valuations.
Ultimately, however, we see a strong future for the Hedge Fund sector, underpinned by the industry’s agility and resilience in the face of uncertainty. Indeed, the COVID-19 experience has demonstrated the strong investment case for active management. The sector’s performance over the past six months is a great testimony to the active management industry – it is doing its job of reducing risk and managing volatility. To continue to emerge stronger in the new reality organizations should look to consider the 6 key takeaways.
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