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Securities processing in hedge funds (Review Report)Product Type: Market Research ReportPublished by: Datamonitor Published: July 2006 Product Code: R313-15835 Description IntroductionThis report combines all seven briefs from the securities processing in hedge funds theme for Q1 2006. Areas covered include an overview of trends across the hedge fund industry as well as the actions the major participants (hedge funds, prime brokers and fund administrators) are taking to address these issues, both at a business and technology level. Scope Covers US, Europe and Asia Forecasts hedge fund and prime brokerage spend by region until 2009, with spend broken down by source for all regions covered Highlights The effect of regulation in the US has been an increase in costs associated with hiring of more compliance officers, as well as improved compliance procedures, routine inspections and some level of fee restrictions. As the market becomes increasingly saturated we have begun to see the shape of the industry evolving into a more mature model with 2 distinct segments emerging: front line innovators and large scale players. As firms look to provide reporting on a global basis, we expect to see acquisitions of smaller local companies with local reporting capabilities. In addition, larger investment banks will be able to capitalize on existing synergies by entering the administration space and benefiting from pricing techniques already in operation across the firm. Reasons to Purchase Gain visibility on the latest developments in the global hedge fund market Use Datamonitor's timely and concise analysis of key business and technology issues to develop a compelling go-to-market strategy Table of Contents DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
EXECUTIVE SUMMARY 2
Introduction 2
Key trends in the hedge fund industry (Market Focus) 2
The changing face of the alternative investments industry (Strategy Focus) 2
Technological requirements for the hedge fund industry (Technology Focus) 3
US hedge funds spending (Databook) 3
European hedge funds spending (Databook) 3
Hedge funds spending (Databook) 3
Prime brokerage spending (Databook) 4
KEY TRENDS IN THE HEDGE FUND INDUSTRY (MARKET FOCUS) 8
Summary 8
Investing in hedge funds continues to be an attractive trend 8
Hedge funds outperforming traditional investment techniques 9
Differing hedge fund strategies consistently beat the market 10
Hedge funds are beginning to focus on cost control as the market suffers overcapacity 11
Opportunities limited as markets react to hedge funds activities 12
Corporate governance is a growing concern as investor base expands 13
Institutional investors transpire as key customer group 13
Regulation methods have been enhanced but still lack a singular global framework 13
Regulation for the industry still determined at a national level 14
Competition sparks increased capability demands on service providers 14
Prime brokerage space dominated by big players 15
Securities service firms on the road to consolidation 16
THE CHANGING FACE OF THE ALTERNATIVE INVESTMENTS INDUSTRY (STRATEGY FOCUS) 17
Summary 17
Hedge funds forced to focus on more than just execution 17
Industry segregated between larger players and niche innovators 17
Hedge funds searching for new initiatives to maintain revenues 19
Maturity strikes for the bigger players as cost control dominates 20
Hedge funds putting procedures in place to enforce transparency 21
Prime brokers pushed to provide customizable, full service offerings 22
Hedge fund clients remain a profitable source of revenue for prime brokers 22
Prime brokerage role evolving as hedge funds demand change 22
Sophisticated reporting techniques demanded from fund administrators 23
More acquisitions expected in fund administration industry as globalization takes hold 23
TECHNOLOGICAL REQUIREMENTS FOR THE HEDGE FUND INDUSTRY (TECHNOLOGY FOCUS) 25
Summary 25
The rationalization of a hedge fund manager's desktop is becoming a key feature 25
Pressure to improve trade and portfolio analytics 26
Improvement in execution quality vital for managers looking to get ahead 27
Integrating execution management into order management is the key 28
Prime brokers must focus on robust operational technology solutions to gain market share 29
Next steps in prime brokers' enhanced offerings 29
Opportunity for vendors to service larger funds 30
Fund administrators need to adapt to handle the growing complexity of reporting 31
Institutional clients drive customizable reporting functionality 32
Consolidated views in demand 33
US HEDGE FUND SPENDING (DATABOOK) 34
Introduction 34
Definitions 34
US Market Growth 35
US Hedge Fund Industry IT spend 37
US Hedge Fund Industry IT Source spending 39
IT Spend by source 39
EUROPEAN HEDGE FUND SPENDING (DATABOOK) 41
Introduction 41
European Hedge Fund Market 41
European Market Growth 41
European Hedge Fund Industry IT spend 43
European Hedge Fund Industry IT Source spending 45
HEDGE FUND SPENDING (DATABOOK) 47
Introduction 47
Hedge Fund Market 47
Market Growth 47
Hedge Fund Industry IT spend 49
Hedge Fund Industry IT Source spending 51
PRIME BROKERAGE SPENDING (DATABOOK) 53
Introduction 53
Prime Brokerage Market 53
Prime Brokerage IT Spend 53
Prime brokerage IT Source spending, by region 55
APPENDIX 59
Definitions 59
Alpha - A coefficient which measures risk-adjusted performance, factoring in the risk due to the specific security rather than the overall market. 59
Extended Methodology 59
Further reading 59
Ask the analyst 59
List of Tables
Table 1: Hedge fund industry definitions 34
Table 2: US Hedge Fund Industry Growth 2005-2009 36
Table 3: US Hedge Fund Industry IT Spend 2005-2009 37
Table 4: US Hedge Funds IT Spending, 2005-2009, by source 40
Table 5: European Hedge Fund Industry Growth 2005-2009 42
Table 6: European Hedge Fund Industry IT Spend 2005-2009 43
Table 7: European Hedge Funds IT spend, 2005-2009 46
Table 8: Hedge Fund Industry Growth 2005-2009 48
Table 9: Hedge Fund IT Spend 2005-2009 51
Table 10: Hedge Funds IT Spending 2005-2009, by source 52
Table 11: Prime Brokerage IT Spend, 2005-2009 54
Table 12: US Prime Brokerage IT Spend, 2005-2009 by source 55
Table 13: European Prime Brokerage IT Spend, 2005-2009 by source 56
Table 14: Asia Prime Brokerage IT Spend, 2005-2009 by source 57
Table 15: Global Prime Brokerage IT Spend, 2005-2009 by source 58
List of Figures
Figure 1: Hedge fund strategies have outperformed the market over the last few years 9
Figure 2: Popular hedge fund strategies 11
Figure 3: Roles of hedge fund industry participants 15
Figure 4: Emerging shape of the hedge fund industry 18
Figure 5: A hedge fund's investment cycle 26
Figure 6: Hedge funds' technology objectives 31
Figure 7: US Hedge Fund Industry Growth 2005-2009 35
Figure 8: Market Year on Year Growth 36
Figure 9: US Hedge Fund Industry IT spend 2005-2009 37
Figure 10: IT spend based on Assets Under Management Growth 38
Figure 11: US Hedge Fund Industry IT Spend 2005-2009, by source 39
Figure 12: US Hedge Fund IT Spend Growth, 2005-2009 by source 40
Figure 13: European Hedge Fund Industry Growth 2005-2009 41
Figure 14: Market Year on Year Growth 42
Figure 15: European Hedge Fund Industry IT spend 2005-2009 43
Figure 16: IT spend based on Assets Under Management Growth 44
Figure 17: European Hedge Fund Industry IT Spend 2005-2009, by source 45
Figure 18: European Hedge Fund IT Spend Growth, 2005-2009 by source 46
Figure 19: Hedge Fund Industry Growth 2005-2009, split by region 47
Figure 20: Market Year on Year Growth 48
Figure 21: Hedge Fund Industry IT spend 2005-2009 49
Figure 22: Year on year IT spend growth 50
Figure 23: Hedge Fund IT Spending by region 50
Figure 24: Hedge Fund Industry IT Spend 2005-2009, by source 51
Figure 25: Hedge Fund IT Spend Growth, 2005-2009 by source 52
Figure 26: Prime Brokerage IT Spend 2005-2009 53
Figure 27: Prime Brokerage IT Spend Growth 2005-2009, split by region 54
Figure 28: US Prime Brokerage IT Spend. 2005-2009 55
Figure 29: European Prime Brokerage IT Spend, 2005-2009 56
Figure 30: Asia Prime Brokerage IT Spend, 2005-2009 57
Figure 31: Global Prime Brokerage IT Spend, 2005-2009 58
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