Citi Prime Finance’s 2011 IT Trends & Benchmarks Survey
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Wave 2 innovations are beginning to have a similar impact.
Between 2003 and 2007, hedge funds looking to obtain
advanced capabilities in fnancing or collateral management
were forced to invest their own money as these systems lay
beyond the buy-versus-build threshold. Advances achieved
in recent years have started to change that situation. Since
2008, enough commoditization has occurred so that, by today,
only hedge funds with highly complex requirements would
consider building their own solution as opposed to buying an
existing platform.
Small hedge funds that would most typically be served with
standard functionality in these areas are fairly evenly split
on their preference to buy rather than build fnancing and
collateral management solutions, by 52% to 48%, in contrast to
a clear build preference for both large funds (29% to 71%) and
franchise frms (37% to 63%).
A similar dynamic exists for compliance software and data
management solutions, both areas where new vendor offerings
are emerging quickly to address shifting investor demands
and increased regulatory hurdles. Small hedge funds are
fairly evenly split in their approach for compliance solutions
(45% buy to 55% build), whereas franchise frms at the other
end of the spectrum continue to favor build options (29% to
71%). Data management solution approaches show an almost
identical profle. Small funds (55% to 45%) and medium-sized
funds (62% to 38%) prefer to buy solutions whereas large
hedge funds favor building solutions (38% versus 62%), as do
franchise frms (32% to 68%).
Risk management and the creation of investment decision-
making tools are the only areas where the majority of hedge
funds of all sizes continue to build rather than buy solutions.
In the pursuit of risk management capabilities, small hedge
funds showed a 40% to 60% bias toward build, medium funds
a 36% to 64% preference, large funds a 39% to 61% split and
franchise frms a 21% to 79% ratio. Investment decision-making
tool preferences were as follows: small and medium funds at
33% buy to 67% build, large funds at 41% buy to 59% build and
franchise frms at 21% buy to 79% build.
As the industry continues to evolve, we would expect these
functions to become increasingly standardized as well and
allow for another shift in the buy-versus-build threshold. In
the foreseeable 2011-2012 period, however, it is most likely
that hedge funds seeking capabilities in these areas will be
looking to either hire in-house expertise or contract with industry
expert consultants to address their need for customization in
these applications.
Using these Data Points as Establishing Benchmarks
As we near the end of this inaugural IT Trends and Benchmarking
survey, we have been able to both lay out the story of the hedge
fund industry’s recent evolution and show through our 2011
survey responses the most realistic approaches hedge funds
of various size and vintage are taking today to build out their
infrastructure and capabilities.
This year’s report can be viewed as establishing a set of
benchmarks. Much of what will make the IT Trends and
Benchmarking survey interesting in coming years will be the
year-over-year changes we see in a respondent’s profle and in
their investment path.
Our goal is to publish this paper each fall as hedge funds begin to
formulate their budgets and priorities for the coming calendar
year. This timing should provide our clients and prospects an
independent view against which to assess their own metrics. As
an incentive to thosemanagers that participate in our survey, we
will additionally provide individualized scorecards and analysis
of their responses relative to their peer universe.
For the broader set of readers, we will now present the 2011
baseline data for each sized set of hedge fund respondents.