Last year, hedge funds saw their assets grow, with long/short equity being one of the star performers.

Achieving scalability, meeting clients’ digital demands, dealing with regulatory changes, and managing the various operational idiosyncrasies of running a long/short equity portfolio requires firms to have robust technology infrastructure in place. 

Working with providers who can offer a world class technology platform is non-negotiable.

Long/short equity shows its dominance

Globally, hedge fund Assets under Management (AuM) finished the year strong with a record $4.51 trillion haul ^[1], as market conditions normalized (i.e. easing inflation, falling interest rates, etc).

Long/short equity hedge funds, in particular, produced excellent performance in 2024, with returns of 12%, well above the industry average of 9.8%, helping to propel the strategy’s AuM past the $1.3 trillion threshold for the first time. ^[2]

Other data providers, including With Intelligence, also echo this sentiment (see below). However, recent volatility has caused problems for some long/short equity hedge funds.

Recent market volatility aside, investors have been venturing into long/short equity. According to Barclays, 30% more investors plan to ramp up their exposures to hedge funds rather than to decrease them, with long/short equity (plus market neutral and global macro) being a major beneficiary. ^[3]

The Barclays report added that while family offices and private banks pared back their hedge fund holdings, pension funds, insurance companies, endowments, foundations and sovereign wealth funds are doubling down on their allocations. ^[4]

Meeting investors’ needs for a lighter, quicker experience

Long/short equity hedge funds may be attracting plenty of inflows, but institutional investors are becoming increasingly tech-savvy, a reality managers can no longer ignore, if they are to continue raising capital.

Client reporting is a perfect example here.

15 - 20 years ago, most hedge funds would keep investors updated about their portfolios by sending them a monthly or quarterly performance statement. As investor demographics undergo rapid changes, this level of reporting is no longer acceptable.

Decision-makers at investors nowadays are getting progressively younger, while some might even be full-blown digital natives. When buying goods and services, i.e. on Amazon, Uber, etc., this generation wants a seamless end-to-end digital experience, from the point of purchase, right through to transit and delivery.

This mindset is now permeating into the world of hedge fund investing. Not only do allocators want more frequent reporting, but a growing proportion are demanding access to performance and risk metrics in real time, accessible either through user-friendly client portals or mobile apps.

Managers are, however, stepping up and embracing intuitive platforms and data.

Broadridge’s Digital Transformation & Next Gen Technology 2025 Study found 81% of hedge funds are either at an intermediate or advanced level of development when it comes to embedding digitalization in client relationship management.

As competition for investor assets increases, hedge funds must ensure that they have the right systems and technology platforms to meet customers’ growing digital experience expectations.

Hedge fund operations face tough times ahead

Running a long/short equity portfolio is becoming more complicated for other reasons too.

Firstly, a lot of managers are diversifying their investments beyond just vanilla equities, listed derivatives and swaps, and are instead moving into new and arguably more esoteric asset classes or bespoke financial instruments.

Technology will play a critical role in helping managers navigate some of the complexities involved when trading these assets.

Some firms, for instance, are using technology to enhance their liquidity management through better trade execution.

Elsewhere, other managers are embracing AI to obtain predictive analytics ahead of making investment and trading decisions, thereby giving them a bit of an added edge over their peers. AI-enabled analytics have proven to be an invaluable risk management tool during bouts of market volatility, helping managers put in place measures to avoid sharp losses.

The looming threat of regulation is also heaping pressure on long/short equity hedge funds.

Although the US Federal Courts recently struck down proposals from the Securities and Exchange Commission (SEC) to force managers to report details about their fees and expenses to clients every quarter, together with separate provisions that would have required hedge funds to register as dealers in the Treasury market, ^[5] the industry is still facing its fair share of regulatory challenges.

For example, the SEC may have granted hedge funds a brief reprieve from having to provide information about their gross short positions above a certain threshold in the Form SHO, but the rules will still come into force from February 2026.^[6] To comply with the updated Form SHO regime, hedge funds will need to enhance their reporting systems.

Now live in North America, more markets are adopting T+1 settlements. Again, this is forcing hedge funds to automate their post-trade processes, i.e. allocations and confirmations, so they can avoid fails under the new compressed settlement cycle.

Hedge funds do seem to be adapting their businesses ahead of these regulations taking effect with -78% of hedge funds telling Broadridge’s Digital Transformation & Next Gen Technology 2025 Study that they are either in the intermediate or advanced stages of developing digital regulatory communications and reporting solutions.

Adoption of new technologies in the middle and back office will ultimately help drive improvements across asset management businesses.

Internalizing or externalizing the solution?

Many long/short equity hedge funds are busy debating whether they should build or buy their technology platforms, although most firms seem to be leaning towards the latter option.

Just as their outgoings trend upwards, hedge funds are finding that their fees - the once standard 2% management and 20% performance fee model - are sliding downwards, hovering at 1.34% and 15.92% respectively ^[8]

With fewer resources and less working capital to deploy, a lot of firms, especially small to mid sized managers, are struggling to find sufficient budget to spend on their in-house technology stacks. Often, internally developed technology projects tend to have a singular focus or may be solving a specific problem, whereas outside vendors are usually more holistic in nature, giving firms better value.

Furthermore, external service providers will not be as vulnerable as a hedge fund to key person risk, as their employee pools are typically much deeper. Take a small to mid sized hedge fund, for instance. If one individual is responsible for the firm’s entire technology infrastructure and they leave or become otherwise incapacitated, then that risks putting the hedge fund in an awkward spot.

Again, this underlines the importance of working with best-in-class service providers.

At the same time, cost pressures are also forcing hedge funds to consolidate the number of service providers they work with. Rationalizing service provider relationships will help managers etch out savings, simplify their operations and reduce risk.

Getting a solution in place

In order to succeed, hedge funds need to work with service providers which offer them access to state of the art technology platforms.

This comes as Broadridge is introducing a reimagined user interface (UI) for portfolio, trade order and risk management and general ledger (GL) capabilities, aimed initially at long/short equity hedge funds. It offers a simplified, web-based workflow tailored for portfolio managers, traders and operations teams, with tablet access for on-the-go trading and management.

As an extension of Broadridge’s Portfolio and Order Management System, the new tools will simplify portfolio modelling, stress testing, compliance tracking, trading workflows and real-time portfolio monitoring. It will also include an automated double entry GL shadow accounting system, further boosting operational efficiency.

To complement these technological advancements, Broadridge provides comprehensive BPO and managed services support, enabling funds to streamline their middle-office and back-office operations and focus on core investment strategies.

^{[1] Hedge Fund Research – January 24, 2025 – Hedge fund assets surge to record as Trump administration takes office
[2] Hedge Fund Research – January 24, 2025 – Hedge fund assets surge to record as Trump administration takes office
[3] Barclays – February 4, 2025 – Hedge fund outlook: Allocations set to grow in 2025
[4] Barclays – February 4, 2025 – Hedge fund outlook: Allocations set to grow in 2025
[5] Bloomberg – November 21, 2024 – Judge tosses SEC treasury dealer rule in hedge fund win
[6] Willkie, Farr & Gallagher – February 7, 2025 – SEC delays implementation of short sale reporting on Form SHO
[7] Nomura – Equity Finance explained
[8] Funds Europe – January 10, 2025 – Hedge funds close 2024 strong, launches surge}