Dublin, 19 February 2018 – Digital technologies are radically reshaping the alternative investment industry.
But a large majority of hedge funds and private equity firms appear to be too slow to respond. This is the key finding of a new report, Alternative investments 3.0 – digitise or jeopardise, based on a global survey of 125 hedge funds and private equity firms and conducted by KPMG and CREATE-Research.
While 98 percent of respondents say ‘business as usual’ is not an option, at least three out of five respondents said they are still at the nascent stage of ‘awareness raising’ with respect to revolutionary technologies that could potentially transform their businesses.
Less than a third of respondents said they are at the implementation stage for key innovations, while for both hedge funds and private equity, advanced technologies such as blockchain and robo advisors have been implemented by three percent or fewer.
Speaking at the launch of the report, Brian Clavin, Partner and Head of Asset Management, KPMG in Ireland said: “The alternative investment industry is facing significant disruption from digitisation, yet a majority of firms are not ready to implement key innovations that could potentially transform their businesses. The time to act is now. Alternative managers need to embrace change and seek new ways to gain a competitive edge, or risk being sidelined.”
Indeed, when asked which factors will accelerate the pace of digital innovation in their business over the rest of the decade, respondents cited market-driven factors, including growing cost pressures (58 percent), changing investor needs (51 percent) and fees and charges, becoming a major differentiator (30 percent). They also cited client-driven factors such as growing social acceptance of digitisation, and end-investors becoming more demanding (37 percent) and more financially and digitally savvy (36 percent).
Holding back the pace of digitisation are a number of technology and business-related factors. On the technology side, they include cyber security (58 percent), legacy IT systems (43 percent), and the high cost of digital innovations (42 percent). On the business side, they include senior executives being too focused on day-to-day matters (40 percent), regulatory issues (39 percent) and low risk appetite in the corporate culture (31 percent).
The survey identified activities that are especially ripe for disruption in the front, middle and back offices. They include portfolio risk management, research and securities selection, alpha generation, deal flows, risk & compliance and fund accounting.
The survey also offers tips to business leaders on how their firms can ramp up the pace of innovation. It includes collaborating with fintechs, forming strategic partnerships with third-party administrators, improving the human–machine interface to harvest the benefits of machine learning, and broadening and deepening the talent pool to upgrade in-house technology capabilities.
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Alternative investments 3.0 – digitise or jeopardise is jointly produced by KPMG International and CREATE-Research, examining the impact of digital disruption on the alternative investment industry. The report focuses on two key segments of alternative investments most amenable to digitization – hedge funds and private equity – and is based on research across 125 firms in 19 countries as well as a select number of in-depth interviews with CEOs, CIOs and Board Directors of alternative investment companies.