Global Hedge Fund Industry: Accelerating out of the pandemic - KPMG Global (2024)

• 49% of hedge funds have complemented their traditional investment strategies with private markets or other new products or strategies.
• The Investor relations function within hedge funds continues to grow in prominence with one third of all respondents expanding their investor teams.
  
• 79% of respondents are moving to some form of permanent hybrid working, although many have reservations about their new models.

The hedge fund industry’s next chapter will be driven by the insights ascertained by hedge funds during the pandemic around the capabilities of its people and its technologies, its important relationship with investors, as well as its unique cultures, according to new findings from AIMA and KPMG. These lessons allowed the industry to strategically adapt, pivot and thus position itself for the investment opportunities ahead. While the changes driving these strategy shifts all have implications on the business operating model, the industry is well positioned to address those challenges.

162 hedge fund managers, representing approximately $US1 trillion in AUM, were questioned for the Global Hedge Fund Industry: Accelerating out of the pandemic report, which explores how hedge funds have pivoted to the new working environment brought by the onset of the COVID-19 pandemic.

Product innovation, encouraged by investor demand, is a top-of-mind concern for many managers and is propelling many of these to offer new forms of tailored investor products and also to enter new investment arenas, specifically around private markets. Just under half (46%) of those surveyed predict hybrid hedge/private equity products to be the most popular in the next 12 months, with another 33% also pointing to private credit.

Looking ahead to 2022, when asked what the chief concern of the coming 12 months was, regulation was cited by 42 percent of respondents.

Compliance headwinds are expected to increase globally: the pace of regulatory change is accelerating in the EU and UK as each side seeks to forge a new path post-Brexit. Firms must get to grips with unfamiliar rulesets as they increasingly move into new investment classes, be that digital assets or private markets; and supervisors are ever more focused on the operational resilience of the sector – a reaction to the market stresses of COVID-19 – as well as the validity of firms’ sustainability claims in an era of huge growth in environmental, social and governance (ESG) investing.

In addition, the new operating model will introduce further considerations for compliance officers around people and data management in a decentralized working environment.

When we carried out the research for the annual report last year, the work focused on how hedge fund managers were coping with the economic devastation wrought by the pandemic. We found an industry agile and resilient in the face of massive market disruption. The findings from this year’s research describe an industry poised to accelerate out of the pandemic, with firms adopting new approaches to improve the efficiency of their business model and developing new investor solutions to deepen their alignment with investor clients.

Tom Kehoe
Global Head of Research and Communications
AIMA

The survey questioned hedge funds on how they were approaching the challenges of operating in a decentralized and hybrid environment, including the long-term implications on technology and cybersecurity spend, data and talent management, and stakeholder engagement, among other topics.

Almost a third (32%) say they expanded their investor teams and increased their organizational importance as it pertains to capital raising and investor relations. Meanwhile, ESG is also expected to remain as a driving force for change, although hedge funds have currently paused from embracing this important product market trend further by a lack of global standards and actionable data.

KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. We operate in 147 countries and territories and have more than 219,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with around 2,000 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than US$2tn in hedge fund and private credit assets. AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry.

AIMA set up the Alternative Credit Council (ACC) to help firms focused in the private credit and direct lending space. The ACC currently represents over 200 members that manage US$450bn of private credit assets globally.

AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialized educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors).