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Many new entrants to the fund management market risk being pushed out in the earliest stages when they overlook certain key areas of managing their business. Clinging to outdated technology, neglecting evolving investor expectations, and failing to establish strong risk management frameworks may leave funds vulnerable to market fluctuations, while simultaneously eroding investor confidence. Recognizing these signs early is essential to creating a strategy that thrives in the long run.
Stagnant Technology
In a data-driven industry, technology is your compass. Yet many fund managers continue to rely on outdated analytics systems that can’t keep up with real-time market movements. Delayed data and limited insights hinder a fund’s ability to react to new trends or risks. This isn’t just about falling behind the competition; it’s about missing out on valuable opportunities.
Relying on legacy systems means inefficient workflows, inaccurate performance tracking, and missed chances to optimize your strategy. In an industry where having the latest information and being able to process it quickly is crucial, sticking to outdated technology leaves you flying blind.
What You Can Do: Adopting cutting-edge analytics tools can streamline decision-making, enhance performance, and allow for a more agile response to market fluctuations. Investing in modern technology isn’t an upgrade—it’s a necessity for staying competitive.
Failure to Align with Investor Expectations
Investor expectations have shifted. Gone are the days when investors would silently put up with high management fees and opaque performance metrics. Today, they expect more: transparency, flexibility, and clear value. Investors are increasingly scrutinizing the fees they pay, especially in environments where returns may not justify high costs.
Failure to adapt to these expectations puts your fund at risk of capital outflows. When investors don’t feel their interests align with the manager’s, trust erodes quickly. Even a well-performing fund can lose investors if its fee structure feels out of step with industry norms.
What You Can Do: Regularly evaluate your fee structure to ensure it remains competitive. Offering performance-linked fees that demonstrate value can not only retain investor trust but also attract new capital. Transparency around performance, backed by data-driven reporting, should be integral to your investor communication strategy.
Weak Risk Management
Effective risk management is the cornerstone of your success, yet many funds overlook this in favor of short-term gains. Insufficient hedging strategies, ineffective risk budgeting, or a lack of stress testing can leave your portfolio unnecessarily exposed to volatility. This can lead to significant losses when markets move against your positions.
Without robust risk controls, even minor market downturns can have a disproportionate impact on your portfolio’s performance. Risk isn’t something that can be addressed reactively—it must be managed proactively and consistently.
What You Can Do: Strengthen your risk management framework with comprehensive risk budgeting, dynamic hedging strategies, and frequent stress testing. This approach allows you to better understand and mitigate potential risks, while also positioning your fund to capture opportunities in volatile markets. An integrated risk management strategy not only protects your downside but builds resilience into your portfolio.
An unsustainable fund management strategy is one that fails to adapt to the realities of a rapidly changing market. By recognizing and addressing these red flags, you can create a more robust, future-proof strategy. The funds that survive and thrive will be those that proactively modernize their approach, prioritize investor alignment, and embed risk management into their core operations. If any of these red flags resonate with your current strategy, it may be time for a serious reassessment.
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Kevin Becker is a Co-Founder and CEO of Kiski. Connect with him on LinkedIn here.