Director, Saxo Advanced Solutions APAC, Saxo Markets
Summary: Technology will continue to disrupt Hedge Funds from front to back office, how should industry players adapt and partner up in order not to be left behind?
2020 has been a year of ups and downs for many people. For hedge funds large and small, disruptions have come in many shapes and forms. From a global pandemic to more industry and market-specific operational disruptions that left fund managers out in the cold, players in the space have had to contend with a range of unprecedented challenges.
Yet, all is not lost. If managed well, fund managers can benefit from turning the current challenges into opportunities to thrive in 2021.
In Singapore, the sector has seen an uptick in the Asset Under Management by Singapore-based managers, as assets increased by 15.7% to hit $4 trillion by the end of 2019 – this contrasts with a modest 5.4% rise to $3.4 trillion in 2018. It becomes even more critical to leverage the growth strategically to achieve more in 2021.
Digital transformation is essential, but you don’t have to do it yourself
The COVID19 pandemic has accelerated the digitisation journey, for better or worse.
Funds that want to thrive in the future need to urgently jump on the digital acceleration train if they want to stay relevant in a post-pandemic New Normal.
What the hedge fund industry needs now is cost effective solutions where both client and prime broker can be successful to achieve continued growth and success. Many have already started deploying technology such as machine learning and AI to service clients better, enhancing the improvement process, informing investment decisions, and generating trade ideas, for instance. Still, many of the back-end processes are better off being automated to free up resources. This has enabled smaller funds to be able to compete with the larger entities.
To find stability amidst the chaos, instead of trying to build new functions themselves, hedge funds should look for solution providers that are well-rounded and cost-efficient. Having the stability and security of working with a regulated bank combined with cutting-edge technologies and industry-leading expertise will leave fund managers more time, attention and resources to focus on securing strong performance and returns.
Go for speed, accuracy and diversification
For hedge funds in Singapore, the biggest game changer this year is the launch of the variable capital companies (VCC) framework. It’s timely as Singapore is fast becoming an Asia Pacific hub for asset managers seeking a destination to co-locate their fund management activities alongside their investment domiciles.
Since launching in early 2020, more than 120 VCCs have already been incorporated with ACRA as of mid-September. The benefits of the VCC are manifold and already well documented in many other articles. From Saxo’s vantage point, we see a strong demand from hedge funds wanting to tap into the VCC. Specifically, hedge funds that want to succeed are looking for speed and accuracy, and they can also benefit from comprehensive global multi-asset offerings.
The VCC entity itself typically takes three to four weeks to set up. However, any sub-fund under the VCC umbrella typically takes one day. To stay ahead of the curve and not lose out because of tardiness, this is a significant feature that could make all the difference.
Reducing costs and complexities
A VCC can work as a standalone fund, or as an umbrella structure. The latter provides significant cost savings since the sub-funds can share costs incurred setting up and maintaining the entities. Sub-funds will also have the same service providers, including the same administrative agent, auditor, fund manager, as well as custodian. Saxo’s technology can support the VCC to focus on other core aspects of their business such as prospecting and fund raising. From a service perspective, multi departmental support from Relationship Managers to a world class Sales Team and Prime Service teams all contribute to enhancing the trading experience of hedge funds.
Whether it is a standalone or umbrella structure, a VCC can hold various assets. However, within the sub-fund setup, assets and liabilities are segregated vis-à-vis each sub fund, allowing different asset classes to be held under the same parent entity without the fear of risk contagion. This is great news as diversification becomes key with the volatility in the global markets.
Hedge funds should seek out the best providers that allow them to trade global markets across multiple asset classes via proprietary and third-party execution management systems (EMS), FIX API or via an open API architecture. They should also be on the look-out for whether they can be well supported by an experienced global sales trading team and award winning research strategists who can provide hedge fund clients with high quality coverage, market colour and trade ideas around the clock.
Contact us to get accelerated onboarding to a VCC structure.
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