“You shouldn’t do things differently just because they’re different. They need to be better.” – Elon Musk
Hedge funds have been early adopters, and beneficiaries, of the changes brought about by financial technology. The traditional investment management boutique business model has not only been a driver of FinTech development but has been a major beneficiary.
In its simplest form, FinTech is a technology that seeks to improve and automate the delivery and use of financial services. This covers a huge array of products in the financial sector, from retail banking to insurance. For hedge funds this is typically realized in the form of process orientated software and analytical tools.
The hedge fund industry, as we know it today, was founded on FinTech products. Long before the moniker was applied, the investment banks developed multiple technologies, typically in-house, to support their prime broker model. At the same time, Mike Bloomberg was able to deliver the ‘Bloomberg Terminal’, which enabled access to centralized data and analytics.
Today hedge funds utilize FinTech across the entire firm. Front office is supported by complex analytical tools, which is now reaching AI. Traders are surrounded by solutions, from OMS to trading venues. The middle and back office has access to efficient process orientated systems, providing straight through processing of traditional operational functions, such as trade settlement and position reconciliation. This further extends to risk management and compliance monitoring.
Augmented FinTech
At Quay Partners, we have been developing proprietary FinTech for over 15 years. Our Technology Lab, based in Vilnius, is vital to the effective, and efficient, delivery of our offering. As an aside, since 2016, Lithuania has become the leading FinTech hub in Europe. As we first broke ground there sixteen years ago, we can attest to why this is the case.
Our decision to focus on proprietary FinTech development, rather than integrate third party technology, was simple. Firstly, at that time the technology available was either underdeveloped for our requirements or prohibitively expensive. Secondly, we had access to a pool of developer talent that was dynamic and keen to disrupt the status quo. Finally, the end users were driving the demand, design, and application, providing an optimum developmental environment.
Since we embarked on our FinTech development, many existing solutions have been developed further, and new standalone solutions have been brought to market, which can easily slot in to the even the most complex hedge funds workflow. These tend to be niche products and each provider brings with it a specialist process knowledge. Therefore, a new hedge fund can purchase or lease these products to satisfy their front to back processes. However, this model is bound by traditional application and expectation.
We do not see the internalization of FinTech as the future. As the hedge fund industry continues to evolve, functions that are currently considered as vitally integrated into the business model will be externalized. A tangible example of this is data storage. Data servers, once a vital in-house feature, is now a cloud-based solution.
At Quay Partners we are delivering an augmented FinTech solution to our clients. Building on our experience, we are able to deliver a bespoke workflow solution, allowing our client to externalize process orientated functions, and even integrate their existing front office processes in to a FinTech solution.
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To learn how Quay Partners can guide your business to success, contact us for more information.
Quay Partners Group delivers bespoke investment management solutions to independent hedge fund managers and family offices.
Thomas Underwood, the Founder, has over 20 years’ experience in managing and operating hedge funds.