Frontline Insights on Recent Hedge Fund Research Report

In March and April of 2024, Dynamo, alongside partners Dakota and ProFundCom, conducted its first-ever survey of a global hedge fund audience. The responses were revealing. According to respondents, economic and geopolitical factors are weighing heavily on investment strategies and outlook this year.

While potential interest rate fluctuations, economic uncertainty, and the ambiguous outcome of the U.S. presidential election are casting shadows over the market, at the same time, the survey revealed bold postures by hedge fund firms. Here is how our survey respondents indicated they plan to navigate the dynamic road ahead.

Increased Fundraising and Diversification on the Horizon

One of the most prominent changes hedge funds anticipate is a swell in fundraising activity. Compared to the broader GP marketplace, a significantly higher proportion of hedge funds (55%) project increased fundraising efforts in the coming year. This suggests a focus on securing capital to navigate potential market volatility and capitalize on emerging opportunities.

Furthermore, nearly half (45%) of participating hedge funds plan to diversify their investments across multiple asset classes within the next twelve months. This stands in contrast to the overall GP sector, where only 25% indicated diversification as part of their strategy. This trend signals a proactive approach to mitigating risk and maximizing alpha generation in a potentially uncertain economic climate.

Geopolitical and Economic Factors Driving the Shift

Hedge fund participants attributed their strategic shifts to several key factors, with the top five being:

  • Interest Rates (80%)
  • U.S. Presidential Election (78%)
  • Geopolitical Conflicts (63%)
  • Economic Recession (61%)
  • Global Trade Tensions (43%)

These concerns underscore the interconnectedness of global markets and the potential impact of external events on investment performance.

It was also notable that immediate economic and political factors outweighed ESG and climate considerations, which only 16% of hedge funds indicated were influencing their investment and business decisions. While ESG and climate issues hold long-term importance for sustainability and risk management, hedge funds may be prioritizing navigating near-term market dynamics to maximize returns or mitigate risks.

Challenges and Opportunities: Fundraising, Investor Relations, and Tech Adoption

While pursuing these strategic pivots, hedge funds also identified potential roadblocks. The top three challenges they surfaced were:

  1. Fundraising in current market conditions
  2. Managing key client relationships and investor reporting
  3. Delivering alpha to justify fees

Yet despite these challenges, nearly 15% of participants indicated plans to increase their fees in the next year, suggesting confidence in their ability to deliver strong returns despite potential market headwinds.

Technology is expected to play a crucial role in overcoming these challenges and driving business transformation. A significant majority of respondents identified “in-depth reporting for investors” and “automated workflows” as key priorities.

Human-Centric AI Adoption

Hedge fund firms appear to be taking a cautious approach towards AI implementation. While they recognize its potential—only 4% of respondents said they had no plans to use it—it ranked last on the list of priorities for implementing new technology. This suggests a measured approach to AI adoption, focusing on maximizing human talent alongside technological advancements.

Hedge funds reported greater difficulty in recruiting and retaining talented employees compared to GPs surveyed earlier this year. This challenge underscores the growing importance of human-technology collaboration. By leveraging automation for mundane tasks, hedge funds can empower their talent focus on the uniquely human skills of judgment and relationship-building.

When asked about the top three ways their firms plan to use AI, the responses seemed to indicate an overall desire to leverage AI to enhance strategic decision-making and risk mitigation.

  1. Risk Management (56%)
  2. Predictive Analysis (55%)
  3. Portfolio Optimization (52%)

Learn More About Hedge Funds Firms’ Strategic Plans in 2024

For more information about hedge fund firms’ outlook on fundraising, diversification, fee structures, key external forces, talent acquisition and technology adoption, the full findings of Dynamo’s 2024 hedge fund survey are available to download today.

Dynamo Frontline Insights Report: Trends, Challenges & Insights from Leading Hedge Funds

 

Donna Parent is the Chief Marketing Officer (CMO) at Dynamo Software. Donna is responsible for the corporate brand, demand generation strategies, and go-to-market initiatives for promoting Dynamo’s end-to-end cloud-based platform to the alternatives ecosystem. She is focused on fueling lifelong relationships with consumers, businesses, and strategic partners. Connect with Donna on LinkedIn.