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Looking Back at 2023 and Looking Ahead at 2024: Hedge Funds

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MUFG Investor Services’ Alt Insider recently sat down with Cliodhna Murphy, Head of Product Development, to discuss the key trends facing hedge funds as we look to 2024, the challenges that clients are facing in the current market environment, how the business is leveraging outsourcing, and much more.

Q: 2023 has been a year of uncertainty. Can you tell us about some of the challenges your clients have navigated?

We have seen a number of fund launches that have been postponed or cancelled. In addition to that, asset raising has been challenging for some of our clients. This is due to the high interest rate environment and clients preferring not to deploy cash into alternatives given the current market environment.

Q: Tell us more about the conversations that you’re having with clients and how clients benefit from our services?

The importance of the investor experience when subscribing to a fund cannot be underestimated. A positive onboarding experience is a key differentiator and will ultimately lead to better investor relations and a longer-term partnership.

What we are seeing amongst our client base is that investors are seeking an efficient digital onboarding experience. Therefore, a seamless investor experience has become even more significant.

We also recognize that more asset managers are investing across both public and private assets and are benefitting from our platform and wealth of expertise. We orchestrate scalable and flexible solutions across the entire investment value chain, offering a suite of integrated solutions to help streamline operations, mitigate risks, and enhance efficiencies.

Q: Looking ahead, what will be the key trends facing hedge funds in 2024 and beyond?

The theme of artificial intelligence (AI) continues to be a prevalent topic in client discussions. However, we expect that AI will persist as a support tool rather than taking over roles entirely.

Clients are looking for partners who are investing in the space of generative AI and how their investor base, internal operations can benefit from it, be it digital investor onboarding or a more streamlined payment processing. Some key areas of focus are generative AI chatbot, categorization service and data extraction.  At MUFG Investor Services, we are taking a more iterative approach and investing our time and resources in some of the more advanced AI platforms especially given the explosive pace at which this space has grown in the last 12-18 months.

Q: Outsourcing has become an increasingly popular strategic decision in recent years. What role will it play for hedge funds in 2024?

In the current market, there’s a dual challenge of cost pressures and the need for innovation. At MUFG Investor Services, we see outsourcing as a fundamental opportunity to scale.

Among our client base, outsourced middle office is popular, but we are also seeing an increase in requests that were previously seen as ‘front office’, from pre-trade compliance, outsourced trading from multi-manager platforms and order generation/rebalancing, risk and cash flow forecasting to liquidity reporting. Our priority is to be a trusted strategic partner for all our clients. This involves a mutual investment in each other’s success, where we collectively navigate challenges and celebrate successes together.