Hedge Funds’ IT spending will drop by 20.5 percent touching a low of USD 1.35 billion by the end of 2009, says a recent Celent report. Wall Street downturn, restructuring of the capital markets and the change in technology preferences will shape the future of IT spending by Hedge Funds. Credit deficiency in financial markets, which stayed on in the later half of 2008, is likely to trickle down in 2009. According to the report, IT spending in the hedge funds will worst hit in Asia Pacific and European regions.

Hedge Funds will focus on streamlining processes and reducing IT maintenance costs to stay competitive. Fund managers will continue to exploit their existing technology and new technology agreements with high deal value will be a rare occurrence. CIOs will decide to change technology platforms will only if system malfunctions or software gets outdated.

However, technology spending on new software solutions is expected to rise in some areas of the hedge fund industry. Areas such as risk analytics, risk monitoring, risk control, compliance, risk reporting, collateral management, pricing and valuation, liquidity risk management, performance measurement and attribution, and front office systems are likely to attract investment.

Celent’s Securities and Investments Group analyst, Isabel Schauerte, remarked, “Approaches to thinking about and using technology will be transformed. Many of these changes will be transitory, some permanent. For the time being, cost-minimization and operational efficiency are at the top of the operational agenda.’” Commenting further, she said “Yet, retrenchment is certain to be followed by reinvigorated spending. Today, generating alpha is, to some extent, a function of generating ‘operational alpha’.”