Alfred W. Jones opened the doors of the world’s first hedge fund firm almost 70 years ago. He could not have known it at the time, but his innovations would sow the seeds of a new industry that would change the face of investing.
The story of the hedge fund industry since then has been one of continued growth and innovation. Today’s hedge fund firms trade in everything from vintage wines to risk factors, using cutting-edge mathematics to manage risks and even to execute trades—the stuff of science fiction in Jones’s days.
At the same time, the industry’s investors have changed. The benefits of hedge funds are no longer restricted to the few. Pensions, university endowments, and sovereign wealth funds now number amongst the industry’s largest investors. The industry is also increasingly open to retail investors, meaning that everyday investors are able to access the same financial innovation and rigorous risk management that was once only available to the wealthiest investors.
What kind of products will hedge fund firms offer to their new investor? How will they reconcile profits with social responsibility?
Many have questioned what the future holds for the hedge fund industry, given its history of innovation. What kind of products will hedge fund firms offer to their new investor? How will they reconcile profits with social responsibility? Will hedge fund firms even exist in the future, or will they have been replaced by artificial intelligence systems? If they do still exist, and are still staffed with humans rather than machines, how will hedge firms navigate the coming generational change in leadership?
The Alternative Investment Management Association (AIMA) and Aberdeen Standard Investments (ASI) decided to answer those questions. We are delighted to introduce Perspectives: Industry Leaders on the Future of the Hedge Fund Industry, our look at the future of the hedge fund industry
This paper is based on conversations with 25 of the leading figures in the hedge fund industry, from founding principals at hedge fund firms, to senior management at multi-asset managers, to industry academics. Collectively they represent close to 300 years of leadership experience in the hedge fund industry and over $500 billion in assets under management. We would like to thank them again for their participation in this paper, and for sharing their insights with us.
The picture those individuals painted in our conversations was of an industry embracing change while staying true to its primary focus of delivering for investors. They were excited about the challenges they faced and optimistic about their ability to evolve and remain valued partners to their clients. Far from failing to embrace change, hedge fund firms are thriving on it, exploring new ways of protecting and growing the capital of their investors.
This paper is also the result of the dedication of the members of AIMA’s Research Committee, who sifted through hundreds of pages of interview transcripts and spent months writing, editing, and rewriting dozens of drafts. We would like to take this opportunity to thank each of them for their efforts.
Global Head of Client-Driven and Multi-Manager Solutions
Aberdeen Standard Investments (ASI)
The Alternative Investment Management Association (AIMA)