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Transforming Hedge Funds Through Digitization

As seen in The Hedge Newsletter

The impact of digitization in the hedge fund and alternative investment space is taking effect right now. Technologies in artificial intelligence (AI), blockchain applications, and data management are impacting investment and operational functions. The range of capabilities derived from these technologies span from data aggregation, improved research, liquidity management and enhanced workflows. As daily functions evolve, the pivot to digitization will become both apparent and necessary.

In general, the benefits from AI are scale and efficiency, providing higher quality data and reducing the need for manual input. Two subsets of AI technology that shows promise for hedge funds are machine learning and natural language processing.

Machine learning has been used to automate data recognition and document extraction, while recent developments in natural language processing, optical character recognition and visual relationship detection enable systems to extract unstructured data from documentation. As documents are collected, machine learning algorithms become increasingly accurate, automating the analysis of such information, translating text into analyzable data, supporting investment research and portfolio decision making.

Blockchain technology, such as distributed ledgers, can be used to automate transactions from multiple parties in a single and connected record. These applications provide real-time transparency not only to the counterparts of a transaction but interested parties, such as investment managers, brokers, custodians, administrators and fund investors. As all parties have instantaneous access to a chain of transactions, execution, settlement and reconciliation happens in nearly parallel time.

Earlier this year, a trade settlement firm completed same-day settlement with two global brokerage houses through a blockchain. For hedge funds, blockchain’s capabilities on same day settlement and smart contracts have huge implications. For example, the redemption or withdrawal terms many funds currently provide in their offering documents, such as notice periods and gates, may be hard-pressed to continue in their current form if portfolio holdings of different liquidity can be transacted and settled the same day.

Data management, through cloud and related computing, can help investment managers harness disparate data sets by condensing siloed information or organizing it in such a way as to allow different systems (i.e., portfolio management, risk management, compliance or accounting) to quickly connect related data from different pools of information.

Increasingly, fund investors and their consultants are demanding greater levels of transparency within performance monitoring and due diligence practices. A hedge fund manager that has greater access and speed to respond to such requests will benefit from connective data management solutions.

Northern Trust Front Office Solutions is a holistic digital and service solution designed for modern institutional portfolios. We simplify investment data management for asset allocators and managers with complex, multi-asset class portfolios to improve portfolio analysis and investment decision making. Our offering integrates multiple data sources into one system and offers extensive customization to organize that data to what is most important to your organization. We support the most sophisticated clients including endowments, foundations, pension plans, corporations, healthcare organizations, family offices, and OCIOs.

  

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In our three-part webinar series, our panel of experts discuss the evolving landscape of alternative investing and how artificial intelligence (AI), blockchain and data management are driving the digitization of alternatives.

Investors holding alternative assets have long endured frustrating, tedious chores in overseeing their portfolios. Ground-breaking automation solutions are finally streamlining these processes.

As asset owners have increased their allocations to alternative assets, many have been challenged in aggregating an accurate picture of their portfolios. New technology solutions can change that experience.

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