Hedge Funds are Taking a Liking to Blockchain
In the recent past, a new technology known as blockchain has taken the world by a storm, threatening to disrupt almost every industry, from healthcare to transport to finance.
While blockchain is still in its nascent stages in most industries, it’s already bringing significant transformations in the investment industry. The hedge fund sector is one area that is reaping big fruits from the technology.
Since 2009, hedge funds in the U.S. and Europe have been in the limelight for lackluster performance despite charging investors high management and incentive fees. The lack of transparency around fund managers’ costs has received blame for the declining industry.
The blockchain technology is about to change this by introducing new ways to ensure transparency in hedge fund fees and also improve investments. For instance, LendingRobot, a robo-advisor for P2P lending, has recently unveiled an automated hedge fund that applies blockchain to ensure transparency in fund management fees and performance.
Every week, LendingRobot Series publishes a detailed public ledger of its investments, down to the worth of individual payment made to each note. Each ledger receives a “harsh code” that is notarized in Ethereum’s blockchain to secure the data.
Unlike the traditional hedge funds which charge a 2% management fee and 20% incentive fees, the LendingRobot hedge fund charges a 1% management fee and caps fund expenses at 0.59% with no extra fees. The low fees are, as a result of AI and blockchain technology, taking over most fund management tasks.
Hedge funds are also investing in cryptocurrencies to boost their returns in another year of underperformance. According to Bitcoin Magazine, the hedge funds invested in cryptocurrencies and blockchain technology are mostly the ones that have managed to outperform the S&P 500 index in the first quarter of 2017.
With the rate at which the blockchain technology is growing, there is no doubt that major disruptions in the hedge fund industry are on the way. Hedge funds must, therefore, be ready to adopt it if they are to remain relevant in the highly competitive industry.