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Charting a new path for the hedge fund front office

In the weeks and months ahead, hedge fund organizations will have to implement new business continuity plans, redefine their workplace environment, and expand investment in technology and process automation as we move beyond work-from-home toward a home-office hybrid work cadence.

Nowhere will the changes be more prominent than in the front-office, where many of the largest operational and workflow hurdles had to be addressed last year to ensure investment teams could remain productive and collaborative while working from home over the past year.

The pandemic has proven to be the ultimate stress-test for all systems and processes across the buy-side front-office, and research management is no exception. Prior to the global lockdown last March, we were seeing a surge in demand from client organizations looking to implement cloud-based, SaaS-delivered, work-from-anywhere research management solutions. The pandemic accelerated that push.

In a client poll we took in April, 58% of respondents told us front-office teams within their organization had the most difficulty transitioning to a work-from-home environment. Less than 30% listed back-office teams, while only 12% said middle-office teams had difficulty shifting to remote working. Why is that?

The impact of Covid-19 on the investment management industry manifested predominantly in the front office – predictably so. For decades, front-office teams have been over-reliant on an ‘over-the-shoulder’ approach to collaboration that included quick conversations by the water cooler, spontaneous 15-minute sit-downs in the conference room, and quick discussions in an open-office setting.

We all took the convenience of these face-to-face communications for granted. When they disappeared in March, front-office teams needed new and practical solutions to remain productive and competitive in a uniquely challenging market. Some firms found solutions quickly, others took longer – and many still need them.

There is one major trend that stood out as a difference maker this year when compared to previous disruptive events. That is the use of cloud and SaaS-based investment management software and the willingness of more front-office teams to trust these modern tools. For investment teams that were using cloud-based technologies, the transition to work-from-home last year was significantly less disruptive.

Consider our user base at Mackey, which is comprised mainly of front-office investment teams for actively managed portfolios. During the initial weeks of lockdown, platform usage rates among clients stay relatively consistent, indicating a seamless switch from office to home. As work-from-home measures continued through 2020 and into 2021, usage of MackeyRMS has steadily increased.

Interestingly, we saw three specific behavioral changes among clients since the first round of lockdowns began:

There was a significantly higher percentage of research content being authored directly within our platform, either via our browser-based login or via the Mackey native mobile app suite.

There was a 50% spike in our iOS and Android mobile app usage in the first half of 2020 and an additional 50% increase in the second half of 2020.

We saw a 300% spike in the use of our collaboration toolkit features, such as in-app commenting, notification engine, automated email-threading, and others.

All these usage trends tell us that investment teams flocked to the RMS to maintain their individual workflows and team interactions during the disruptive events of 2020.

So, given what we already know, what will the long-term implications of 2020 be on the hedge fund front-office? No one knows the future – and certainly not in the current climate – but from the insights we have gathered over the course of the year, here are a few trends we predict will have a big impact:

Redefining the modern workplace environment

Right now, it is difficult to imagine a return to densely packed, open-air offices as we emerge from the pandemic. And we likely will not see a return (at least not to their original form). Firms have already begun rethinking the workplace environment, and organizational operating models will need to adjust. While some front-office professionals may still view a work-from-home model as a novel concept in the short term, many already view it as a right. Longer-term, a home-office hybrid work cadence is likely here to stay. So, the question becomes, how can we bridge that gap?

An accelerated move to the cloud by investment teams

Front-office investment teams leveraging cloud technology were clearly able to make a smoother transition to working from home last year. Teams that relied on VPN access, installed applications, and newly configured hardware to access corporate networks had to overcome much bigger logistical hurdles. The lessons learned from this event will drive higher adoption of cloud and SaaS-based technologies moving forward. Collaboration and workflow-efficiency from anywhere has moved from a nice-to-have to a must-have, especially for analysts and portfolio managers.

Increased calls for workflow transparency and data security

The growth of cloud technology and remote working models will drive calls for greater transparency and data security from investors and regulators alike. There will be additional emphasis on protecting personal information and minimizing data loss and leakage. With even more demand for user-friendly, mobile, and modern front-office solutions, there will be a heightened need to maintain workflow transparency and centralized auditing capability for investment team workflows, which will be increasingly decentralized from central offices.

Reengineering business continuity plans for mobility

Investment organizations are going to have to recreate their business continuity plans (BCP). One of the most noteworthy challenges organizations faced when this crisis hit is that many BCPs relied on failover to other geographies as the default for managing through disruptive events. That approach was not going to be successful in a global pandemic. Moving forward, BCPs will focus less on geographies for housing technology during disruption and more on technology that can support a mobile, work-from-anywhere workforce.

The full extent of the pandemic’s impact on the hedge fund front office is still unknown, but the picture is getting clearer. Based on what we have seen over the past year, significant change is well underway, and the technologies and services front-office investment teams need has forever been transformed.

Unsurprisingly, sophisticated investment organizations are moving to new technologies and business processes that support a work-from-anywhere approach, without compromising team collaboration, their unique investment process or information security. Ultimately, these changes can and will lead to a more efficient, reliable, and productive operating model for the hedge fund front-office. And that is value that can be passed directly to investors, who are also recognizing these changes and seeking managers who demonstrate this type of organizational resiliency and efficiency.

Will Keuper

Will Keuper is responsible for product development at MackeyRMS and oversees the firm’s business across the EMEA region. He has more than a decade of experience within the financial industry and has been with MackeyRMS since 2012. Will holds a BA in Economics from Harvard University.

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