Report Highlights Challenges and Innovation in the Hedge Fund Industry

In a new report, ‘Challenges and Innovation in the Hedge Fund Industry’, Celent examines the structural challenges that the hedge fund industry has been faced with following the credit crunch, as well as a practical view on how the industry responds. Institutional investors account for an increasing percentage of the client base of hedge funds and pension funds have accelerated their push into the industry. To meet the requirements of these investors, hedge funds have developed a much more mature business model. Asset concentration among the largest hedge funds largely reflects the changes in capital sources. ‘Smart money’ – endowments or high net worth individuals – are gravitating toward high-profile boutique funds that have the potential to generate outsized returns. New money from pension funds is gravitating towards the large, established players with more developed administration and compliance departments. At the same time, the competition for alpha has been heating up. Circumventing the commoditisation trap is one of the biggest challenges for the industry. To this end, hedge funds have become a visible and active participant in the lending business, developed more hybrid capacities and have increasingly sought to build high-capacity/low-latency smart-order routing infrastructures that will allow them to access liquidity faster, reduce market impact, increase speed and reduce trading costs.


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