Hedge fund companies plan strategic investments and business changes in response to geopolitical and economic factors
‘Dynamo Frontline Insight Report’ provides a glimpse of what’s next for hedge funds in technology, investing and fundraising
BOSTON, May 8, 2024–(BUSINESS WIRE)–Insights from a survey of global hedge fund firms indicate that geopolitical and economic factors could be behind a potentially significant shift in investment and business strategy. In anticipation of the 2024 U.S. presidential election, as well as the expected continuation of a high interest rate environment, hedge fund leaders participating in the survey said their companies are planning bold steps to mitigate risk and maximize the alpha potential.
The results of the survey, published through a partnership between Dynamo Software, Dakota and ProFundCom, are contextualized in the “Dynamo Frontline Insights Report: Trends, Challenges and Insights from Top Hedge Funds.”
Greater fundraising, more diversification
Among the most notable changes hedge funds plan to make in the next year are increasing fundraising activity and diversifying. A much larger number of hedge funds – compared to the overall General Partner (GP) market – expect to see greater fundraising efforts. More than half (55%) of hedge funds surveyed by Dynamo said they expect to increase fundraising activities in 2025. Just 30% of the general GP community said the same when they were surveyed by Dynamo earlier in 2024.
Regarding investment allocations, nearly half (45%) of hedge fund participants said they plan to diversify across multiple asset classes over the next 12 months. In contrast, only 25% of the global GP sector indicated that their investment strategy would include diversification in 2024.
Hedge fund participants named the top five geopolitical and economic factors influencing these expected movements as follows: interest rates (cited by 80% of participants), the US presidential election (78%), geopolitical conflicts (63% ), economic recession (61%) and global trade tensions (43%).
2024 Challenges: Fundraising, Investor Relations, and Delivering Sufficient Alpha for Fees
In pursuing these strategic changes in investment and business strategy, hedge funds anticipated some potential obstacles. The top three challenges participants said they currently face in their businesses are “raising funds in current marketing conditions,” “managing key client relationships and investor reporting,” and “delivering alpha to justify fees.” (However, it’s notable that nearly 15% of respondents said their hedge fund management firm will increase fees in the next 12 months.)
Technology will play a significant role in helping overcome these challenges and maximize transformational business change. For example, a significant majority of respondents named “detailed investor reporting” (63%) and “automated workflows” (63%) as top priorities for their companies. Just over a quarter of respondents (27%) expect ESG/DEI to become a greater need in these in-depth reporting initiatives.
Empowering Human Talent with Technology
The survey indicated that more hedge funds see increasing value in collaboration between humans and technology. In fact, among the top three most important factors for participants when implementing new technology was “empowering the entire team to leverage it.” At the same time, they are cautiously evaluating AI, which received the fewest votes when asked what is most important in a new technology.
“Hedge funds are closely watching both sides of the AI coin,” said Dynamo Software CEO Hank Boughner. “On the investment side, potentially outsized expectations and ‘AI washing’ are concerns. On the operations side, return on investment is an important factor, but so is the potential disruption of what hedge funds have long claimed be your greatest generator of alpha – human talent.”
Of the hedge funds planning to implement AI in the next 12 months, the top three applications are risk management (56%), predictive analytics (55%), and portfolio optimization (52%).
Data automation enables fundraising and investor relations goals
Summarizing the survey findings, research partner and ProFundCom founder Paul Das noted a market need for strong, reliable data and automation solutions. “The apparent focus on fundraising and investor relations underscores hedge funds’ desire to grow and preserve assets under management. Accelerating the delivery of prospecting data to fundraising teams will be a key enabler of this goal. We hope to see more hedge funds prioritizing the implementation of automation solutions capable of delivering actionable intelligence directly through CMR in real time.”
The complete “Dynamo Frontline Insights Report: Trends, Challenges and Insights from Top Hedge Funds“can be accessed at Dynamo website.
About Dynamo Frontline Insight reports
Published quarterly, Dynamo Frontline Insight Reports contain primary research obtained through online surveys of alternative investor audiences. Research results are contextualized by Dynamo subject matter experts in formal Frontline research reports. To date, Dynamo’s research team has focused on providing notable insights related to the attitudes, forecasts and strategic plans that Limited Partners (LPs), General Partners (GPs), Hedge Funds and Emerging Managers have about a series of alternative investment topics. To learn more about Dynamo research reports, visit the Resource Library or contact media@dynamosoftware.com.
About Dynamo Software, Inc.
Dynamo gives alternative investors a performance advantage, empowering them to efficiently scale their company to capitalize on the growing wave of private market opportunities. With the Dynamo alternative investment platform, limited and general partners can now run a fully integrated firm, putting all of their data to work to accelerate operations in the front, middle and back office, encouraging teams to work smarter and enabling leaders to make better investment decisions and scale their company. Dynamo has a global presence with operations in North America, EMEA, APAC and the United Arab Emirates. For more information, visit DynamoSoftware.com.
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