By Tom Kehoe, Managing Director and Global Head of Research and Communications at the Alternative Investment Management Association (AIMA).
Despite fresh new threats from Coronavirus variants, assets under management for the hedge fund industry continues to break new records. While the implications of the pandemic continue to reverberate, much knowledge has been assimilated that resonates with hedge fund organisations about their people, technologies and cultures. Its investment strategies are also well positioned to have an even greater influence on investment portfolios in the year ahead. Below are the key themes that we see for the hedge fund industry over the course of 2022.
War on talent to intensify:
Talent management remains the number one business priority with fund managers acknowledging an industry that demands a greater work-life balance, in addition to the imperatives of being more diverse, equitable and inclusive. Looking ahead, the next hiring frontier will be to secure ESG expertise in-house, although exactly what characteristics the role of an ESG specialist will have remains an open debate.
ESG integration will continue apace:
Responsible investing and ESG will continue to gain prominence in 2022 as assimilation into all aspects of the alternative investment industry continues, from investment strategies in public and private markets to risk management and internal hiring and promotion policies through bolstered DE&I strategies.
The lack of consistent, comparable corporate data that is widely considered to be the primary headwind for the sector and we will see enhanced regulatory reporting frameworks across all regions, but primarily in the EU with SFDR, which by its scope will have global implications. Standard setters are increasingly turning their attention to an overhaul of corporate reporting requirements, improving the ability of investment managers to develop products that prioritise ESG considerations and report against key ESG metrics.
Hedge fund digital assets allocations will pick up steam in 2022:
The past year witnessed a number of significant milestones in the digital assets sector including the first country adopting Bitcoin as legal tender as well as regulators globally discussing how to create fair cryptocurrency regulations.
While the capital invested in digital assets is still largely from high-net-worth investors and family offices, curiosity from institutional investors continues to grow with several large institutional investors stepping into the crypto space. As we receive greater regulatory clarity, development of sound operational practices, we would expect to see traditional hedge funds increase their investment in this emerging asset class.
New blueprint for hedge fund operating model to emerge:
The pandemic has brought about significant changes in the way hedge funds operate. As the world exits this period, business operating models are being re-evaluated as hedge funds examine core processes, cost structures and hybrid working environments as they drive for greater efficiency in a new normal. The convergence of trends emerging from the pandemic as well as more established market features will drive the industry to become more efficient and strategic with their resource allocation taking advantage of new technologies, outsourced services and investment tools.