Regulatory scrutiny by the SEC and the brutal dogfight for scarce alpha are pushing US hedge funds to implement a more rigorous and formalized trading process, according to a recent report published by New-York based research firm TABB Group. In tandem, hedge funds are working with their sell side counterparts to bring additional cost-efficiency to an industry seeing revenues fall for the fourth straight year. Report officials concluded, based on interviews with 63 separate Hedge Fund Managers managing $301 billion, that the industry needs head traders to continually act as evangelizers for better practices.
Now in its eighth year, the study’s key findings included evidence of a more dramatic than usual shift in presence among the top five overall and top five algorithm brokers in 2012, driven by changes in the sell-side trading landscape and an increased focus on broker relationships over execution performance. In addition, two-thirds of the firms surveyed have already established a formal broker-vote process; among these funds, 70 percent conduct the voting process on a quarterly basis, at a minimum, according to the report. TABB Group is a research and consulting firm focusing on capital markets with offices in New York and London.