Spending by hedge funds and asset managers on alpha generation platforms will increase sharply over the next three years, according to a new report from Aite Group. The research and advisory firm added that increased competition between quant funds would drive demand.
The report predicted that spending will reach close to $120 million by 2011, from less than $40 million in 2008. Spending in 2006 was less than $20 million.
Alpha generation platforms are designed to create a more centralised and streamlined process for the development of trading models, which Aite believes can vastly improve the overall productivity of quantitative funds.
Given the increase in the total number of quantitatively-driven funds in recent years, the pressure to come up with the next big quant model has grown exponentially. Because certain short-term strategies only remain effective for three to four months, rapid construction and implementation of alpha models has become much more urgent, the report said.
While today’s market is littered with disparate, third-party applications, Aite asserted that increasing competition will heighten demand for an all-encompassing platform designed to reduce development errors and time to market is destined to grow dramatically. The report said that quant firms that can implement a highly efficient process for alpha discovery will gain significant competitive edge for years to come.
“The demand for alpha generation platforms clearly exists in the hedge fund community as funds continue to battle fiercely to capture additional alpha in an increasingly crowded marketplace,” said John Jay, senior analyst with Aite Group and co-author of the report, in a statement. “However, with the concept of quantitative investment analysis expanding into the mainstream investment arena, the need for a single platform to streamline the overall workflow will increase even more among traditional asset managers.”
The Aite report profiles and compares the alpha generation technology platforms offered by 4th Story, Alphacet, ClariFI, Deltix and QuantHouse.