Trading & Execution

Hedge fund IT budgets slashed by one fifth for 2009

The severe impact of the financial crisis on hedge fund performance and profitability will cause a dramatic cut in information technology spending in 2009, according to research and consulting firm Celent.

In a new report, ‘Hedge Fund IT Spending: The Inevitable Contraction’, Celent estimates a decrease in IT spending compared with last year of 20.5% by the end of 2009, which equates to $1.35 billion. Asian and European hedge funds are expected to take the hardest hits, having performed badly in highly volatile credit and equity markets.

September 2008 alone produced losses by hedge funds of nearly 5.5%, the industry’s second-worst monthly performance on record, according to the HFRI Fund Weighted Composite Index. As well as short-term losses, the crisis will have a long-term impact on market structure and business models, according to Celent. As a result, hedge funds will increasingly focus IT spending on risk reducing measures, maintenance and front-end growth investments, such as smart-order routing and algorithmic trading, instead of large system acquisitions or replacements.

Analyst and report author Isabel Schaurte said, “Approaches to thinking about and using technology will be transformed. Many of these changes will be transitory, some permanent. For the time being, cost-minimisation and operational efficiency are at the top of the operational agenda.”

Celent estimates that new investment spending will begin to pick up in 2011, with a solid growth pattern established once again in 2012, when firms will begin to differentiate themselves via new technology routes.