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hedge funds unknowns

How to hedge against unknown economic challenges

The current macroeconomic climate is proving to be a challenge for businesses across the financial sector, and hedge funds are by no means exempt.

In this article, first published by Global Investor Group, I explain how observability helps hedge funds become aware of the “unknown unknowns” and take control of their IT.

A combination of a global energy crisis, rising inflation, and a drop in consumer confidence has led to a substantial decline in profits in many areas of the financial sector. Hedge funds tend to have a reputation for an “act now, think later” mentality when it comes to their investment strategy, and this perhaps needs to be amplified when it comes to utilizing technology.

As opportunities to generate returns diminish, every opportunity needs to be seized. A risk-seeking mentality and an agility that allows hedge funds to strike at a moment’s notice is crucial – and this requires an adequate understanding of technology’s role in supporting the sector. While it’s all well to say that funds need to capitalize on every opportunity, in those crucial moments – which can be few and far between during periods of economic difficulty – if your technology fails, what do you do?

A delay of even just few seconds can have seven-figure consequences, and that doesn’t factor in the costs of a missed opportunity that arise when a good deal cannot be executed efficiently due to technological failures. Yet in spite of this fact, IT issues remain all too prevalent for firms. The use of technology within hedge funds is hardly a new concept – in fact, the majority of firms have already moved to adopt new technologies.

Risk of systems outage

However, this simply underscores that the issue does not lie in the utilization of technology, but rather ensuring that the risk of systems outages is properly mitigated. With this in mind, what can funds do to ensure their technology is firing on all cylinders? In order to minimize the risk of failure, it is vital that firms have full observability of their IT systems at all times.

It is important to note the difference between “observability” and “monitoring” here: funds need to be aware of the unknown unknowns, rather than known unknowns. System monitoring tells you if they are functioning or not, observability tells you why it isn’t. Observability in real time for all relevant data, both structured and unstructured, is of paramount importance.

The deployment of technology for these ends will ensure that hedge funds significantly reduce the mean time to resolution (MTTR) – the time it takes to resolve faults as they occur. Furthermore, by knowing about potential issues sooner rather than later, funds are able to minimize risks before they escalate and impact revenue. IT infrastructures can also become more efficient and sustainable through using technology to ensure better management of capacity levels.

Typically, hedge fund technology is bespoke and, as such, requires specialist management tools to support it. As such, adaptability and customizability are key aspects for IT surveillance platforms, especially ones that allow you to determine how your infrastructure is monitored. It is also worth mentioning that IT and system outages don’t just affect hedge funds and their ability to capitalize on opportunistic moments – investors may start to lose faith in funds.

Technological resilience counts

Capital gains is not the only factor that influences trust in a fund, as the underlying technological infrastructure also holds a great deal of importance. When informed investors perform due diligence on a fund’s operations, the strength of their IT operations has become a more pertinent issue. With this in mind it is vital that firms have the solutions in place to ensure technological resilience, regardless of what else is occurring.

With the current macroeconomic turmoil looking likely to stay for the foreseeable future, funds must take control of the controllable and make sure that they are setting themselves up for success. It must be said that technology is not necessarily a cure-all, but it does ensure that if and when something goes wrong, the bottom line does not fail.

Learn more about observability in this eBook, Add observability to your monitoring strategy, by clicking below. 

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You can read the original article in Global Investor Group here.