Hedge Fund Data Management – Focusing on Alpha Generation
First Published Thursday, 2nd February 2012 02:30 pm from Xand : Peter Curley
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
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dir="ltr">Hedge Fund Data Management -
Background
Originally hedge funds
were small nimble firms that were highly focused on the task of
alpha generation. The industry's out-sized returns soon attracted
attention resulting in huge inflows of capital. For many managers
this success also came with much greater operational complexity.
Key industry developments like the change in hedge fund investor
profile from high-net-worth individuals to institutional
investors, the move from the single prime model to the
multi-prime model, and the increase in regulation due to the 2008
crisis, have all inevitably distracted managers from their core
mission of alpha generation.
The
subject of hedge fund data management is particularly important
because all of the above key industry developments have
necessitated onerous and time-consuming reporting requirements.
Hedge fund data management is also vital because market data
underlies all hedge fund investment strategies. A number of
trends in hedge fund data management have greatly increased the
associated challenges of dealing with market data
including:
- Soaring quote and
execution message rates
- Continuing
fragmentation of execution venues
- Increasing
demand for multi-asset class and global data.
Proliferation of
Applications
It is important to
note, that not only has there been a significant change in the
quantity and type of market data demanded by hedge funds, but
also the types of applications that consume this data have
changed dramatically. Today, the average hedge fund environment
has any number of critical applications. The traditional standard
configuration of an order management system plus some type of
portfolio management system and/or accounting platform, has been
augmented by newer more specialized applications such as
execution management systems, research management systems, risk
systems etc. These applications make the job of hedge fund data
management ever more complex because they all demand market data
in different formats, latencies, and
degrees of granularity.
Traditional
Hedge Fund Data Management
To
attempt to manage this increasing complexity, firms have built
large hedge fund data management infrastructures. These
invariably include some type of connectivity such as a leased
line, software that parses and cleans, and hardware that is used
to receive and store the market data. All of this infrastructure
has become a considerable distraction to hedge fund managers.
Seemingly simple tasks like adding an asset-class or creating a
new report can become involved IT projects that suck up valuable
resources and cause delays. Looking to the future hedge fund
managers see no relief in sight with all of the above mentioned
trends pointing to more complexity not less.
dir="ltr">A Return to Focus with Cloud-based Hedge Fund Data
Management
It is obvious that for
many firms in-house hedge fund data management is not a
sustainable path. Over time hedge fund data management is likely
to consume more and more resources. Fortunately cloud-based
market data offers a solution that is far more cost effective and
flexible. With this approach there is no need to build out
traditional hedge fund data management infrastructure. Hedge
funds can simply access their market data via standardized web
APIs. Market data can be consumed and paid for on an on-demand
basis. The adoption of a market data cloud will allow firms to
remove a major distraction so that they can once again be more
focused on their core mission of alpha generation.
This is the second post in our
" href="http://xignite.web-services-blog.com/2012/01/top-5-hedge-fund-technology-challenges-all-blown-away-by-the-cloud/">Top
5 Hedge Fund Technology Challenges All Blown Away by the
Cloud" multi-part blog series. Be on the look out for
the next post "Expanding the Universe of Alpha
Generation Possibilities".
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