Through the Looking Glass: A Reflection on 2022 and Predictions for 2023
The past year was characterized by volatility, macroeconomic shifts, and market fluctuations. As the markets digested the rapid rise in postCOVID demand, economies found their footings, and the Fed focused on reining in inflation. Stocks and bonds were conjoined in near-historic mutual underperformance. The SEC introduced a slew of new proposals and rules that will potentially create noteworthy changes in the trading of securities and escalate the responsibilities of hedge funds and other market participants in 2023.
These changes come at a challenging time in the hedge fund ecosystem. Even during recent periods of strong trading activity and returns, the prime brokerage landscape is shrinking, and many prime brokers have been pulling back their services or exiting the business. This environment is particularly hard on smaller funds and emerging managers, who are often the least prepared for such changes. To weather the storm, funds need to be as effective as possible in managing challenging markets, shifting regulatory regimes, and ever-increasing data requirements. In order to stay competitive and keep up with demand, funds require access to new tools and processes and increased levels of support from their prime partners for capital, technology, and data.
Relying on old solutions and manual processes to contend with the rapidly moving industry shifts and challenges is not sufficient for hedge funds today. As it happens, innovation often flourishes at market and regulatory inflection points. However, the breadth of changes will push many firms to the limits of their resources–especially if they do not have the correct infrastructure.
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