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I
Citi Prime Finance’s 2011 IT Trends & Benchmarks Survey
Methodology
IT Spend Accelerates Sharply as
Hedge Funds AUM Grows
On average, small hedge funds (< $500 million AUM) expect
to spend just under $600,000 on IT-related costs in 2011 as
highlighted in Chart 1. This spend is fairly evenly broken out
across key categories with 32% of those dollars allocated to
IT personnel; 23% to hardware and networks; 27% to software
and 18% to data. Because of their relatively low AUM, this level
of IT investment equates to nearly 12 basis points for small
managers. As illustrated in Chart 2, that fgure is higher than
for all other segments. This refects the high baseline costs of
running a hedge fund.
IT spending from medium-sized hedge funds ($500 million to
$3.0 billion AUM) is expected to average just over $900,000
in 2011. Medium-sized funds maintain a large investment in IT
personnel (35% of total spend), but reduce their proportionate
outlays to both hardware (19%) and software (15%). Data
costs rise substantially as a share of expense (31%). Although
these frms increase their IT outlay by just over 50% relative
to small hedge funds, the impact of such spending is muted
by higher AUM. On average, IT spend by medium-sized funds
is seen as equating to only ~6 basis points. This refects their
ability to realize cost effciencies as they leverage their initial
infrastructure to service a growing asset base.
Proportionately, large funds ($3.0 billion to $5.0 billion AUM)
divide their IT spend in a similar manner to medium-sized funds
with 31% allocated to IT personnel, 18% to hardware, 18% to
software and 33% to data. Yet, the amount of money spent
in each of these categories is signifcantly larger. On average,
these hedge funds expect to spend just over $3.1 million on IT
in 2011, more than triple the amount medium-sized funds plan
to spend. From a basis point perspective, this outlay is seen as
accounting for ~8 basis points. These are the managers most
likely to have begun receiving institutional investor outlays,
requiring them to upgrade their capabilities to meet the more
stringent reporting and oversight demands of this audience.
Dramatic gains in IT spending continue as hedge funds reach
franchise status (> $5.0 billion AUM). Managers’ spend in this
category is projected to average $7.9 million in 2011, more
than 13x the average spend forecast by the industry’s smallest
funds. This refects the expansion of these organizations both
regionally and by strategy. Slightly more of this money will be
spent proportionately on software and slightly less on data
when compared to large funds. Franchise funds plan to split
their IT spending out as follows: 32% to IT personnel, 18% to
hardware, 22% to software and 28% on data. Because of their
higher AUM, franchise funds can realize these expenditures and
keep their relative outlay to only ~10 basis points.
Section One: Understanding the Metrics on 2011 IT Spend
Analysis of the benchmark data provided by survey respondents shows that, as a whole, the hedge fund
industry is likely to spend $2.09 billion on IT-related categories in 2011, the equivalent of about ~9 basis points
relative to total industry AUM. This outlay includes money spent on hardware, software, data and IT personnel.
Source: Citi Prime Finance
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
Franchise
Funds
Large
Funds
Medium
Funds
Small
Funds
.
Source: Citi Prime Finance
0
2
4
6
8
10
12
Franchise
Funds
Large
Funds
Medium
Funds
Small
Funds
Chart 2: Average IT Spend by Fund Type: Basis Points
Chart 1: IT Spend by Fund Type: Dollars
Source: Citi Prime Finance
Source: Citi Prime Finance