How Small Hedge Funds Are Going Digital?

And Why You Should Too!

In 2021, the hedge fund industry asset reached its all-time high. Thanks to the last decade of positive inflows which has made this possible. Indeed, the driving force of the growth in this industry in the past decade has been primarily brought forth by performance and not much by positive inflows. However, the industry seems to have a new best friend in town – Digital transformation.

Investment managers have been under immense pressure for quite some time now, which is acting as a catalyst towards bringing in a monumental shift in technology. 35% of boutique fund managers want to digitize their operations and fund management. In the past, boutique hedge funds struggled to keep up with larger ones due to the traditional IT structure being extremely costly. Moreover, it was also very time-consuming for them to implement and maintain. 

However, times are changing. The advent of cloud-based systems is helping small and mid-sized firms to do more with less.  Many asset managers have turned to technology and invested in digital infrastructures to give them a competitive edge. With a heightened need for technology at boutique firms, asset managers can access a host of digital solutions curated for them at an affordable price. 

The benefit of automation is not just limited to better fund performance. What’s more, is that hedge funds are seeing better client engagement and communication post the implementation. Not just this, there has been substantial growth in fund performance from 50-130bps and a massive 30-70% of cost savings. With time playing a pivotal role in this game, there has been a significant decrease in the turnaround time for many backend processes from 2 hours to just 10 seconds. 

Why are digitized funds outperforming manual counterpart?

Speed, Time & Accuracy!

If there is one critical advantage that the digitized funds have over human-run funds, it’s time. AI is known to adapt to rapidly changing market conditions. Thanks to their speed and power to process a humongous amount of data so quickly. Furthermore, without any need for human – oversight, AI is capable of gathering newly accumulated data and process the same. In an uncertain market, this is a boon.

To measure the consumer, market, and investor sentiment of a specific asset or security, AI often radars through social media platforms and analysis results. After this, managers may or may not use this data to create proprietary indicators based on which they make their trading decisions. 

Given the advantages of AI, it is no longer a surprise that these once so costly operations have now mellowed down to affordable solutions for small hedge funds. We at Pirimid Fintech provide boutique solutions for small hedge funds which help them carry out their digital transformation in a beat. Many small hedge funds have benefitted from these solutions improving their investment performance and reduced their operating cost. 

Digital Solutions That Can Help Small Hedge Funds 

It’s Now More Than Ever!

Digital Solutions have the potential to assist small hedge funds to combine different strategies and tailor allocations. So how can they do it?  Here are 5 boutique solutions that can help small funds level up their asset management game and digitalize their entire manual process, saving both time and money. 

AI-Based Trading Strategies

From the beginning of time, trading has been handled by highly skilled professionals and the possibility of this art being replaced by machines was an unbelievable hypothetical statement. It’s a fact that manual traders are at a disadvantage over traders using AI & ML-based trading strategies.

AI & ML hold the power for solving large-scale trading problems including optimization, analysis, and forecasting in the domain with extreme accuracy and efficiency. Many hedge funds are using AI & ML-based trading strategies that use several neural networks and learning methods that help in creating accurate data points around identification, historical data-based prediction, and analysis of stock prices. 

This in turn helps small hedge funds make fact-based decisions making trading more profitable. There is a lot that goes behind creating these strategies and Pirimid can help small funds develop such strategies with precision and perfection at an affordable price. 

Automated Reconciliation 

Automated reconciliations have helped small hedge funds to cut costs, increase overall number accuracy, optimize their resources, improve their financial assistance, and close deals faster than before. Yes, excel is ideal for some. But, the fact remains that it comes with its challenges like – difficulty in overseeing segregation of duties, GRC & compliance risks, complications, and formatting issues in programming while importing data, risk of human error, and inept.

However, automation has changed the face of reconciliations. AI deals with repetitive tasks like transaction matching, assess and analyze open entries or exceptions and helps in developing qualitative strategic activities. The uniformed approach helps small funds in saving time by automating trade reconciliations using OCR reader and natural language processing. 

Client Communication

Predictions say that by 2025, AI will power 95% of customer interactions. Many firms across the spectrum are turning towards AI to increase their operations and investor relation functions. As teams start ditching spreadsheets and move towards a more digitized space of action, AI always gives an edge over the others. 

AI is helping clients in the hedge fund space to automate the preparation and dispatch of client communications such as performance and portfolio reports and other compliance items. This has not only helped speed up the end-to-end client communication but also improved the performance in investments of small funds.

Portfolio Management 

AI is used in decisions about reporting and asset allocation which helps in the development of portfolios that are capable of meeting targets more closely. Portfolio management uses AI for small hedge funds that track down qualitative data for risk modelling apart from validating and testing them. 

What’s more, is that it also helps in curating accurate predictions of aggregate financial variables. We at Pirimid have made it easier for smaller hedge funds to access low-cost portfolio management solutions and automate their entire working processes. 

Cloud Integration & RPA 

It’s now more than ever that small hedge funds are leaning in towards automating their investment management lifecycle, end to end. In a complex regulatory environment, AI & Robotics can be the answer to solving the difficulties in the data management system. Cloud integration has helped improve overall productivity, provide better analytics, minimize costs, increase competitive advantage, and last but not least, elevated cybersecurity

About Pirimid

We are a tech consulting and development firm-specific to financial services clients. 

We have worked for multiple hedge funds globally across MENA, USA, and APAC region. 

We offer automation solutions specifically curated for small hedge funds to digitize their operations and use sophisticated AI-ML tools for fund management.

We believe in providing access to advanced technology at affordable costs and deliver tailor-made solutions which are designed to automate and help you step forward into the world of digitization, where a more profitable and promising world awaits you.

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