Delivering Business Intelligence to Executive Stakeholders

Hedge Funds See 300% Growth in Digital Client Engagement

Lazar Radenovic

The COVID-19-induced lockdown has been the catalyst for an unprecedented spike in the adoption of digital channels by investors, including fund subscription solutions and the use of investor portals. It’s a watershed in investor behaviour and is good for business. Investors will not go back to paper. Hedge funds seeking ‘Operational Alpha’ will ride this wave to higher net flows and revenue.

The following are some key observations on Hedge Fund client behaviour since the start of COVID-19 restrictions:

  • Top-tier hedge funds are moving to 100% digital subscription solutions
  • COVID-19 has driven a 289% increase in the use of digital channels when compared to pre-lockdown rates* – for example digital data access requests via client portals
  • In the face of COVID-19 restrictions, advisor and investor resistance to executing subscriptions electronically has crumbled to zero
  • Digital adoption is permanent – having made the behaviour switch, investors are highly unlikely to go back to paper

*Data aggregated across our investor portal and digital subscription platform that services 30+ Hedge Funds

‘Operational Alpha’

Two years ago I was asked to join a panel discussion with a number of VCs and Hedge Fund managers to discuss the importance of ‘Operational Alpha’. The concept is simple: Operational Alpha is the additional margin achieved by shifting to digital, i.e. mobilizing data, automating repetitive work, and improving the overall client experience, which translates to increased inflows and stickier assets.

Since then, we have seen a steady stream of investment firms making smart investments. For example, digitising subscription agreements, which means more AUM for managers.  When investors and advisors are given the ability to complete complex subscription agreements in minutes, and re-subscriptions in seconds, they are less likely to overlook the right alternative strategy simply due to the legal overhead. One client estimates that for every dollar of inflows, they left two on the table before moving to digital, as advisors would find a similar strategy with a lower legal and paperwork burden.

 

A digital trial … for the entire planet

What we have witnessed in the past few months during COVID-19 lockdown is extraordinary. Client engagement across digital channels has spiked dramatically and resistance to change is falling.  Overnight, organizations transformed thousands of office jobs into home jobs and adopted new ways of communicating en masse. The need to do business has shown investors the benefits of change, and they will continue to favour managers that can deliver it. Conversely, investment firms that cannot deliver the same convenient, digital investor experience will find themselves starved of new business. It’s a cliché, but investment firms going digital is rapidly becoming the “new normal” and laggards need to move swiftly to catch up and avoid being on the wrong side of outflows or lower inflows.

 

Investor data access

One key performance indicator is the volume of data requests that we see across our client base by their investors and advisors. Traditionally, we expect the highest volume of data requests in January as end of year statements are issued and advisors and investors are actively logging in to run analytics in their portals, calculate IRRs and investigate allocations. When we ran the stats for March, we found an astounding 289% increase in advisor portal data access requests compared to January. April was close behind with a 259% increase compared to January (see Fig. 1).

Fig. 1 – Digital Engagement Increase – Advisors

Data aggregated across our investor portal and digital subscription platform that services 30+ Hedge Funds

Digital subscription agreements

During the lock down, we have supported one of the largest Canadian hedge funds to migrate to a 100% digital operating model. They stopped sending subscription agreements to their investors and advisors. Instead, they simply send them a link to their online subscription document portal. As a result, this firm is processing 100s of discretionary, non-discretionary and direct subscription agreements each month, enabling remote, electronic execution. While over the past two years we have seen a small amount of resistance from counterparties who were not entirely comfortable with electronic signatures, the total number of counterparties who declined to sign digital subscription agreements during this lockdown period plummeted… to zero.

If you would like to hear more, or see a demo of how ADS can support hedge funds with digital solutions to improve client experience, automate operational activities, enable improved sales processes and remove the friction from the investment process, please reach out to Lazar Radenovic at enquiries@alphafmc.com.

About the Author

Lazar Radenovic
Director & Solution Architect

Technology Lead at ADS, responsible for overseeing architecture, development, security, and infrastructure activities