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How Hedge Fund Managers Can Use Technology to Increase Operational Efficiency

How Hedge Fund Managers Can Use Technology to Increase Operational Efficiency

Companies today are utilizing a myriad of innovative technologies that change the way they do business, including robotics, data science, big data, AI and even blockchain.

Although such ground-breaking technologies are becoming widely embraced in many sectors, their connection to hedge fund management, in particular, is still relatively new territory. After all, why would hedge fund managers need to use such technologies?

In short, you can sum up the driving force in one word: efficiency.


Free Up Time to Deepen Client Relationships

The good news is that increased efficiency gained through technology will improve both the cost and quality of your operation.

Unfortunately, many hedge fund firms are spending way too much time managing processes and not enough time managing their clients. Even though freeing up more time to develop stronger and deeper client relationships will take some up-front effort and commitment, many hedge fund managers are facing the challenge.

In fact, a majority (57%) of hedge fund managers are using technology to improve their operational efficiency in response to market disruptions and to avoid falling behind the industry, according to the EY 2017 Global Hedge Fund and Investor Survey: How will you embrace innovation to illuminate competitive advantages?

The survey adds that “recent advances in technology provide creative solutions for hedge fund managers in supporting operating models that add to the bottom line, rather than reduce it.”

In addition, the survey reports that “40% of the more than 100 hedge fund managers surveyed plan to invest in automating manual processes, and more than a quarter (27%) have or will be making investments in AI and robotics to strengthen their middle and back office.”

Robotic Process Automation: A Promising Tool

One promising tool that many firms are interested in adopting and seeing value in is Robotic Process Automation (RPA).

As the name implies, RPA automates routine and repetitive business processes. RPA essentially allows your business to operate better and more consistently by automating processes that occur multiple times each day or each week.

Automating processes like files management and reconciling frees you up to use exception management for priorities that require much more brainpower.

How should a hedge fund approach not only technology — but the right technology — to improve efficiency? And what are some best practices involved in executing an efficiency improvement plan?

Putting Your Process Automation Plans in Motion

Then, once you develop your own unique list of processes you want to automate, follow these steps to set your operational process automation plans in motion:

  1. Don’t just list, but fully understand what all of your processes are and which ones are clearly repetitive and may potentially benefit from automation.
  2. Document your processes and what they specifically involve.
  3. Observe these processes in action and improve the process, if possible, by iterating with the subject matter experts.
  4. Grade the processes. Assign rankings based on your own criteria. Questions you may want to consider include:
    • How repetitive is the task?
    • How precise does it have to be?
    • How much creative input is required?
    • How much time will this save by automating?

This approach will help you to determine which processes are truly your best candidates for automation.

  1. Consider what are the risks to automating various processes (e.g., think about how a robot would function — could it wrongly interpret something like a phishing email and send it to the wrong location or access the Internet in such a way that’s prohibited in your employee manual?)
  2. Research existing software that may work for your identified processes. There are dozens of products currently available, ranging from free to millions of dollars.
  3. Other things to consider when selecting software platforms and a third-party resource to help with your RPA project include:
    • Is the task scheduled or dynamic?
    • What oversight would you expect?
    • Do I have the resources to develop this internally?
    • What should the bot NOT be allowed to do? (and what restrictions should I consider)?

Understandably, it might seem daunting to not only take on the task of automating your processes but to decide which technology is best for you and your clients.

Enlisting the help of a skilled IT partner who has demonstrated experience in hedge fund management can help you identify which processes would benefit from automation and assist in executing a plan.


Defining Your Business Strategy in a Digital World


Disruption is here to stay. The key is to leverage the right technology in ways that will provide you with the greatest return on your investment, including much improved operational efficiency for your firm.

Want to increase operational efficiency at your hedge fund? Contact us to explore the possibilities.