The hedge fund industry is incredibly dynamic and fast moving, with the rise and fall of stocks sometimes altering conditions overnight. Still, general economic trends, as well as previous patterns of growth and decline, allow experts to predict some overall shifts in the industry, and it is vital for hedge fund managers and investors to understand these predicted trends to help them prepare for likely changes. Several well-known global hedge fund consulting and marketing firms release yearly industry analysis after polling thousands of hedge fund organizations and investors. Below are top hedge fund industry guidelines for 2020.
- Hedge Fund Assets Continue to Grow
In 2020, we expect to see overall asset growth and industry consolidation, with hedge fund assets anticipated to continue the sustainable growth they’ve shown over the last decade (despite scares and drops such as the turbulence we’ve seen from Coronavirus fears). Despite some negative predictions from economists stating a general hedge fund decline, many experts believe it is a good time to invest. Hedge fund assets are expected to increase by 3% in 2020, mainly resulting from market performance. It should be noted, however, that this growth won’t offset declining fees from reduced overall revenue.
- U.K. Hedge Funds will Look to U.S. and Canada
Post-Brexit, U.K. hedge fund managers are expected to turn their attention toward American and Canadian investors. The U.K. is the second largest hedge fund market in the world, but after leaving the EU they face many obstacles in dealing with Europe’s hedge fund industry regulations. As the EU was created to promote internal free trade and to put non-EU member states at a disadvantage, Britain is expected to focus more on North American investors and less on those in neighboring European countries.
- ESG Factors Become Increasingly Important in Investor Decisions
Originally a niche activity, the hedge fund industry is rapidly reinventing itself due to evolving, increasingly powerful technology and the fact that ESG (environmental, social and governance) factors are more and more important for potential investors when assessing a company’s future financial performance, or risk and reward. ESG factors can help investors sidestep businesses with potential future financial risk, and many brokerage firms, mutual funds and financial advisors now offer products and services that utilize ESG criteria. Over the next year, investors and managers will seek to integrate ESG criteria across investment products and it will become an increasingly common requirement in regulatory disclosure.
- New Technology will Change How Hedge Funds Operate
Several recent surveys of the hedge fund industry found that new statistical and computational tools, cutting-edge management software, and the increasing use of AI (artificial intelligence) in evaluating industry data will soon require hedge funds to reassess how they operate. More than ever, technology is critical to analyze the overabundance of available data as well as to comply with increasing regulation on how that data is used. Throughout the next decade, hedge fund managers are expected to implement alternative data – companies and software that collect, clean, analyze and interpret data – and start utilizing AI capabilities to inform their investment decisions.
To learn more about hedge fund trends predicted for 2020, and to learn how we can put our hedge fund expertise to work for you, please contact our team.