The ratio of hedge funds to the front office tech stack has changed – Acuiti

As a recent study by Acuiti shows, systematic hedge funds are changing attitudes about how they source and develop their cutting-edge technology.

A study titled “Transferring the Buy and Build Argument to the Front Office” revealed a change in how systematic hedge funds approach finding and growing their front office tech stacks.

Systematic hedge funds have traditionally placed great importance on developing trading strategies in-house. This is the main way in which they differ from their competitors and therefore constitutes a very valuable intellectual property.

Historically, hedge funds have been reluctant to entrust the creation of this technology to third parties, not only for reasons of intellectual property protection, but also for fear of losing the ability to control troubleshooting in the event of a system failure.

This mindset is still firmly ingrained in the industry. However, according to Acuiti’s latest research, conducted in collaboration with global fintech leader Broadridge Financial Solutions, changes are coming.

In a project that surveyed or polled 50 systematic hedge funds, Acuiti found that 58% of the firms surveyed were already using a combination of both outsourcing strategies and in-house development to build their front office technology.

Other key findings of the report include:

• • Latency is a key determinant of outsourcing front office technology, as firms for which latency is critical are more likely to develop in-house.
  • Finding qualified staff and raising seed funding were the biggest challenges in launching the new fund.
  • The front office functions that funds are most likely to outsource are EMS, market data feeds, and front-end trading screens.
  • Buy-and-build platforms are becoming a new alternative to choosing between off-the-shelf solutions and in-house development.

“These results show that there is room in the front office for systematic hedge funds to diversify their tech stack.” says Ross Lancaster, head of research at Acuiti. “This could open a new avenue for funds, especially for those just starting out who need to prioritize cost-effectiveness without giving away IP.”