The hedge fund industry is at an inflection point. Changing investor expectations are forcing hedge fund firms to rethink the investment solutions that they offer. The pace of technological change and the rise of artificial intelligence is leading some to question whether the hedge fund proposition will even exist in a few years. Responsible investment, meanwhile, is becoming more of a priority for hedge fund firms, as they gradually overcome their reluctance to constrain themselves. All of these changes are in turn forcing hedge fund firms to re-evaluate their own inner workings, from how they service investors through to how they build a business that outlasts its founders. For the purposes of this paper, the term ‘hedge fund firm’ includes diversified alternative investment management firms that provide investment management services including a variety of fund products, such as pure hedge funds and liquid alternative products.
The paper is based on the views of some of the leading figures in the hedge fund industry, including the leaders of asset management firms and renowned academics from around the world. Each participant shared their unique perspective on the changes facing the industry, and how best to contend with those changes.
Our conversations with the paper’s participants centred on three key questions:
- What must hedge funds do to maintain their value to investors?
- How will the hedge fund industry be shaped by external forces of disruption and global megatrends?
- How will the structure of hedge fund firms need to change in order for them to remain relevant to the investors and the workforce of the future?
In addressing each of these themes, this paper will examine the major issues facing the hedge fund industry. To begin with we will examine how the products offered by hedge fund firms are changing, and how this change is enabling the industry to cater to increasingly varied investor demands. Next, we will investigate the forces of change most likely to impact on the hedge fund industry over the coming decade: the rise of artificial intelligence and related technologies, and a growing demand for responsible investment options. The final part of this paper will explore how hedge fund firms are reacting to these transformations, changing everything from the services they offer investors to how they staff and structure themselves.
This paper is divided into three main chapters, which are in turn subdivided into two sections each. It is designed so that each chapter, and each section, can be read as a separate paper.
In recent years the hedge fund industry has been criticised over its performance (allegedly below par), its fees (allegedly too high), its size (allegedly too many fund management firms), and its next generation of leaders (allegedly too few in number). Put another way, hedge fund firms have been accused of not keeping up with a changing world.
What we found, however, was an industry embracing change. From the creation of new investment solutions to the implementation of cutting-edge technology to stay ahead of the pack, hedge fund firms are meeting the challenge. In the coming years, hedge fund firms will continue to refine not just what they deliver to their investors, but how they deliver it.