In a new report, Hedge Fund IT Spending: The Inevitable Contraction, Celent investigates the consequences of the financial turmoil and the resulting reorganization of capital markets on the hedge fund industry.
Celent predicts that substantial contraction in IT spending is inevitable. Growth rates will drop across all regions and contribute to lower total spending. However, cuts will be more pronounced in Europe and Asia, given the particularly dire performance of both regions’ hedge funds.
The overarching theme of IT strategies in 2009 will be a focus on realizing efficiency wins from existing applications infrastructure while lowering maintenance costs or at least keeping the status quo. Spending on new technology will take a back seat. Unless faced with a collapsing platform, large scale system acquisitions or replacements are expected to be postponed.
Celent’s projections are tempered by trends in some specific areas where increased spending on either new or upgraded applications is expected. High priority items in 2009 include risk analytics, risk monitoring and control, legal and compliance, (risk) reporting, pricing and valuation, collateral management, liquidity risk management, performance measurement and attribution and front-end growth investments (i.e. algorithmic trading and SOR).
Large scale system acquisitions, such as OMS/EMS and accounting systems, are considered secondary in an environment where many firms are in acute survival and ‘debacle avoidance’ mode.
“Approaches to thinking about and using technology will be transformed,” says Isabel Schauerte, analyst with Securities and Investments Group and author of the report, Celent. “Many of these changes will be transitory, some permanent. For the time being, cost-minimization and operational efficiency are at the top of the operational agenda.”
“Yet, retrenchment is certain to be followed by reinvigorated spending. Today, generating alpha is, to some extent, a function of generating ‘operational alpha’,” continues Isabel Schauerte.
L.D.