Author: FINBOURNE– finbourne.com
If you hadn’t already heard of the ‘Great Resignation’, you’d be forgiven for thinking it was one of the many career self-help manuals you can pick up at Waterstones. It is in fact the term being given to the steep rise in employees choosing betterment over their current employment. In the UK alone, the Office for National Statistics has reported total job-to-job moves of 979,000, driven by resignations rather than dismissals[1]. Meanwhile across the pond, the US has seen 4.3 million leave their employment – 2.9% of its total workforce.
While the data suggests a myriad of reasons behind this latest trend; from general discontentment, to career advancement, work/life balance, and more, there is no denying that talent retention, and attraction for that matter, has become increasingly challenging for most industries.
None more so than the hedge fund industry, which has seen solid performance in the wake of a short term rates rise, and as global equity markets recover recent losses. With industry capital now exceeding the $4 trillion mark[2], retaining resources, from star managers to operations teams will be core to the continuation of this success. Achieving this is already becoming a source of concern according to a recent Alternative Investment Management Association (AIMA) survey, which found over 90% of the 100 hedge funds surveyed globally, were ‘somewhat’ or ‘very concerned’ about talent retention in the short term[3].
While larger global players may survive the heat of this latest development, flexing their scale and manpower, the implications for hedge funds at the smaller end of the scale, are far more acute. Adding to this, is the historical challenge of finding experienced operations talent in the hedge fund space. In the past, much of this was due to the reduced number of funds post Global Financial Crisis. Now, amid a booming industry and with leaner resources and even lower technology adoption, these hedge funds, are facing an altogether different challenge of human capital risk.
If the impact of the ‘Great Resignation’ is to be believed, reducing this risk by retaining the talent firms have today and protecting business continuity will become a greater priority than ever. To ride this wave, hedge funds will need to turn to technology innovation that addresses the vast volumes of data submerging their people and processes today.
Only by freeing up their talent and moving away from the confines of legacy software and highly customised Excel spreadsheets, will hedge funds motivate resources and leverage the knowledge and skills that will be instrumental in the growth of their business
Mitigating human capital risk
I recently wrote about the human cost of doing nothing, where we examined the inertia that has surrounded asset management, inhibited technology adoption and led to the perfect data storm. The truth is technology has a massive effect on a firm’s people and processes, with the potential to engage and empower staff in the long-term.
But the reality today is far from picture perfect; with staff spending significant time on a daily basis, fixing broken processes and desperately trying to manage data overload, while suffering from diminished motivation. This burn out, particularly among highly-qualified employees, may well be contributing to the ‘Great Resignation’, but more than anything it is stagnating productivity and growth.
In the land of hedge funds, this human capital risk is ever more substantial, with smaller teams causing key person dependencies, especially where legacy and proprietary software is in use. As these staff walk out the door or retire, taking valuable and increasingly difficult-to-replace specialist knowledge with them, hedge funds face a difficult challenge in maintaining business continuity.
In the case of talent attraction, those firms that do not invest in technology face an equally rocky road ahead, when it comes to meeting potential employees expectations, particularly where Millennials and Gen Z are concerned. As consumers of high-quality and on demand technologies; from the smartphone in their pocket, to the plethora of services consumed at the touch of a button, this future employee base is unlikely to be as accepting of the long-term use of outdated technology. But it also sees the hedge fund losing out, with graduates spending more time on data reconciliation, instead of putting their well earnt qualifications to good use. And this bears very real consequences for a hedge fund’s ability to sustain its bottom line.
Technology that empowers people and process
As the AIMA research suggests, investing in technology is not only good for talent attraction, but also plays a vital role across the front office investment strategy and middle and back office operations. Effectively managing investment data processes is particularly significant, because data itself is a critical asset to any hedge fund. It straddles the organisation, from the onboarding of new geographies, new asset classes, such as private markets, to new and unstructured data sets, such as Sustainable Finance and sentiment data, and even the management of regulatory change.
What is needed is a new standard for data management, that can break down data complexity, reduce the cost of investing and increase transparency across the hedge fund’s operations. Having dealt with much of this data pain in our former lives, we have committed to delivering this in the form of an Investment Data Management Platform. Making the large volumes of data hedge funds operate, usable and interactable in a meaningful way i.e. enabling funds to derive fast and valuable insights from their data.
Using SaaS technology and built on robust AWS infrastructure, hedge funds can ingest and consolidate their investment, market and reference data in one accessible data store, with a complete audit trail for interrogation and analysis. While the use of open APIs unlocks data from legacy systems and removes the need for high-risk manual reconciliation, crucially bringing transparency to the process and trust in the data.
But it’s the platform’s real-time translation service and Role-Based Access Control (RBAC), that gets to the heart of what hedge funds need today; controlled access, so that employees can access the right data, and in the format and language they need.
Adoption of technology in this way adds significant benefits across a number of hedge fund workflows, including faster insights for portfolio and risk management, timely and trusted data for investor and internal reporting, and enabling CFOs with a more accurate, real-time picture of their shadow Net Asset Value.
The advantages of a SaaS technology and a secure cloud infrastructure also extend beyond the hedge fund, to the wider ecosystem. For instance, integrating with service providers and third parties, including Prime Brokers, to manage the flow of often complex data and demonstrate oversight and control.
Future-proofing your operations
There are clear advantages of investing in investment data management technology, from boosting operational efficiency to lowering cost. But by resolving the pain points of timeliness and uncertainty, hedge funds crucially enable their employees with timely access to the data they need, to do their job successfully.
Of course, technology is not the sole answer to a happier workforce but it is perhaps one of the most significant areas to address, given its ubiquity in hedge fund operations. By addressing investment data management with the right technology, hedge funds can restore the equilibrium between the data that is central to a number of critical workflows, and the people that create valuable insights and form alpha-generating decisions from it. In doing so, it promotes and attracts a more motivated workforce, whose contributions are greater and more impactful to the hedge fund itself.
The ability to implement smart technology that can move employees away from largely manual tasks in their day and instead focus on exception management, as well as applying the skills and knowledge they were hired for, will become essential if hedge funds are to avoid human capital risk now and attract new talent to sustain future growth.
The question these firms need to consider is how future-proof are your operations today and what can you do to eliminate the human capital risk that is threatening your future?
[1] The Great Resignation continues, The Telegraph, November 2021
[2] Hedge fund industry capital surpasses historic milestone, Hedge Fund Research, November 2021
[3] Gaining an edge: How hedge funds are navigating the new talent landscape, AIMA, November 2021
