Hedge funds turning to the middle office to recapture outperformance

It’s been a tough couple of years for hedge funds. The industry was built on delivering eye-popping returns, but recently, hedge funds as a whole have underperformed the market. Over the same period the hedge fund industry has been tarred with the brush of politically unpopular high-frequency trading which has had a “baby with the bathwater” effect. The reality is only a small fraction of hedge funds even participate in HFT, and those that do have been scaling back.

So what’s a hedge fund to do to improve performance and re-attract investors?

Many are investing in middle office improvements to elevate investment performance visibility and automate trade reporting, risk and regulatory efforts. While they continue to obsess over the front office (and probably always will), they’re paying more attention to the middle office as a path to more market insights and better customers results. At the end of the day, the majority of hedge funds are differentiated on their ability to develop a unique macro market philosophy and execute that strategy to achieve outsized returns. Doing what it takes to accentuate what makes them unique and outperform the indexes is the only path back that makes sense for the long run.