Hedge funds are ramping up spending on risk management as concerns over regulatory pressures and transparency grow, according to research by fintech firm Beacon Platform Inc. The study, which surveyed hedge fund executives across major markets like the US, UK, and various European and Asian countries, found that nearly all respondents plan to increase their risk management budgets over the next two years.
56% of these executives said they anticipate spending will rise by 20% or more. This emphasis on risk management reflected broader worries about navigating regulatory changes, with 56% of executives believing regulatory challenges will intensify over the next three years. Senior leadership, such as C-level executives, were particularly concerned, with 73% expecting regulatory hurdles to increase, compared to 38% of investment analysts and portfolio managers.
Transparency also emerged as a critical issue, with approximately 90% of respondents acknowledging a need for improvement, and 23% suggesting a “dramatic” overhaul is required. The pressure for greater transparency is largely attributed to regulatory bodies, although industry organisations and the hedge funds themselves are also pushing for enhanced data disclosure. “As regulatory challenges increase and clients demand greater transparency, our research shows that hedge funds are gearing up to respond to these concerns,” said Asset Tarabayev, chief product officer at Beacon Platform Inc.
Positive summer performance for hedge funds
The study also highlighted specific areas where hedge funds see room for improvement in their risk management systems. While most funds are generally satisfied with their setups, around one-third rated their systems as “average” for latency, or the speed of complex calculations, and 30% rated their systems as average for accuracy. Transparency and flexibility were also flagged as issues, with 22% and 26% of respondents respectively rating their systems as only average in these areas. Hedge funds with lower-rated systems are actively seeking upgrades, with 82% of those with “poor” ratings planning replacements within the next year.
Over half (55%) of those who have seen improved risk visibility attributed it to increased tech investments, and 47% cite the use of specialized third-party services as a contributing factor. As Tarabayev noted: “Spending is expected to grow across the sector as funds look to leverage the advanced reporting features of modern risk management and portfolio analysis systems to improve transparency for investors and regulators alike. Technology-leading funds are already benefiting from these advanced technical capabilities, increasing the transparency of analytic models, accelerating their time to compliance, and delivering real-time views of risk limits and exposures.”
Beacon Platform Inc. commissioned Pure Profile to survey 100 senior hedge fund executives from the US, UK, Germany, Switzerland, France, Italy, Sweden, Norway, and Asia, overseeing a total of $901 billion in assets. The online research took place in August 2024.
