[ A L G O R I T H M I C
T R A D I N G
more important factor as well.
While ease of use continues to be
the most cited reason for using al-
gos among hedge funds, suggesting
that buy-side firms are still placing
a high value on simplicity and
reliability when it comes to tech-
nology offerings, it is the increase
in price improvement functionality
that best illustrates the direction
of travel. As regulatory
focus diminishes,
attention toward
securing the best
outcomes from algo
trading is once again
reasserting itself as the
S U R V E Y ]
dominant force for the buy-side.
There were new factors included
within this section of the algo sur-
vey this year, with the removal of
internal crossing from the reasons
for using algos and the addition of
algo monitoring capabilities (ac-
counting for 7.19% of responses),
data on venue/order routing logic
or analysis (4.35%) and flexibility
and sophistication of smart
order routing (6.90%).
Reversed trend
One of the most in-
teresting trends that the
algo survey has thrown
up in recent years has been
the fluctuating number
of providers that buy-side
firms, both long-only and
hedge fund, are choosing to
implement and use. In last
year’s survey, hedge funds
were almost exclusively
using greater numbers of
Hedge fund 2019
Hedge fund 2018
Hedge fund 2017
Figure 4: Number of providers used (% of responses)
1-2
algo providers than they had his-
torically – the only exception being
on the lower end of the AuM scale
– however that trend is now clearly
in reverse, as shown in Figure 3.
Hedge fund firms that are manag-
ing up to $0.25 billion and $0.25 to
$0.5 billion in assets were the only
two groups to record increased
numbers of algo providers this
year, with the latter bracket actu-
ally doubling the average number
of providers year-on-year, from 1.5
in 2018 to 3 this year, still far above
the figures from the 2017 survey as
well. Mid-sized and larger hedge
funds, however, showed that they
have been cutting down on the
number of algo providers they are
engaged with, most noticeably in
the $0.5 to $1 billion AuM bracket,
which recorded a sharp drop from
an average 4.5 algo providers last
year to just 1.8 in this year’s survey.
While the larger hedge funds are
still averaging over 4 algo provid-
ers, it would be reasonable, based
on recent trends, to expect this
figure to fall as the industry moves
further away from compliance-fo-
cused objectives.
The trend of algo provider
consolidation among hedge funds
is illustrated clearly in Figure 4,
45.71
28.00
51.82
21.43
22.00
19.08
3-4
32.86
>5
50.00
29.10
0.0
10.0
82 // TheTrade // Summer 2019
20.0
30.0
40.0
50.0
60.0