Hedge fund managers will need to update their business model in order to compete with new strategies offered by disruptive and innovative technology providers, writes Quandl’s Abraham Thomas.
Marc Andreessen famously said “software is eating the world”, and nowhere is this truer than in the hedge fund industry.
Niche strategies are being replaced
A decade ago, my colleague Tammer Kamel was a portfolio manager at a large hedge fund company. In this role, Tammer got to inspect and dissect the strategies employed by the world’s leading hedge funds at close range – the perfect job for a curious quant.
One common strategy he investigated at the time was called factoring, which capitalised on the large windows of firms’ accounts receivable. Hedge funds would advance the creditor 90 per cent of the receivable instantly, wait three months for the full 100 per cent payment from the debtor and pocket the 10 per cent spread. It’s a low-risk, high-return way to make profits, and at the time dozens of hedge funds did it, but that’s no longer a common strategy and technology is one of the main reasons this is happening.
The rest of this article can be found at investordaily.com.au.