Hedge funds are citing alternative data as one of their top priorities when investing in front-office technology, according to a new report from the Alternative Investment Management Association.

The survey — which collected responses from 162 industry professionals with an estimated $1trn in AUM — showed that 32% of respondents listed using alternative data and infrastructures as the number one technological goal that would help make their businesses more efficient. Another 31% of those surveyed said they wanted to expand the research tools that were available to their front-office teams.

The report sought to explore how firms were leveraging technology during the COVID-19 pandemic, according to Tom Kehoe, managing director, global head of research and communications at AIMA. "In a decentralised working environment, firms have been able to successfully manage their businesses by using technology — including a greater use of the cloud and ... improvements in enterprise data management," he told Neudata. "All of it is because they want to make sense of all the information out there in an efficient way."

However, investors are anticipating that alternative data will take a backseat to other mega trends in 2022, particularly the move toward hybrid public/private market strategies. Only one-in-five respondents believed alternative data would be the biggest new trend over the next 12 months. Instead, the big winners were hybrid hedge/private equity products (48%) and digital assets (36%) as asset managers look for new strategies that will help them achieve returns that are uncorrelated with public markets.

The report also delved into hedge funds’ current investment approach to ESG. Investors are currently pressing funds to include ESG criteria within their investment strategy, but asset managers are still taking an incremental approach, owing to the lack of global ESG standards and consistent data.

Only one-in-five respondents (21%) said they had developed ESG investment offerings as a part of their product portfolio, while a further 6% said they offer them to investors who request them.

The remainder of those surveyed either said they were waiting for the ESG regulatory landscape to develop before committing more resources, that they were still comparing ESG products with more traditional ones, or that the patchwork of perspectives and regulations made it difficult to develop ESG products.

Photo by Mitchel Lensink on Unsplash