Innovation in Asset Management
An explantation of how at RiskSave we use Innovation Analysis to support Alternative Investment firms.
Financial Services are hugely important to the British Economy and innovation can help it remain so.
Support for London’s vibrant ecosystem of smaller asset managers in the UK is more important than ever with the market becoming increasingly dominated by the largest players and the relentless rise of passive investment. The effect of recent volatility and economic shocks will compound this.
One aspect of support for small investing firms that is often overlooked by the industry is the availability of R&D tax credits. Many asset managers don’t see themselves as innovators and under-estimate the significance of technology and research in their investment process. In manufacturing and other knowledge intensive sectors R&D tax credits are a well-established means of subsidising R&D. In investment services they are barely noticed, let alone understood. This is a shame as here in UK we are lucky to have one of the most generous R&D regimes in the world.
The government is likely to continue to support innovation across all sectors and maintaining a competitive edge is seen as strategically vital to Britain’s position in the global economy. Rishi Sunak’s recent budget showed continued support from the tax system for R&D. With this in mind if you are running operations at a Hedge Fund – an innovation strategy should be on your radar.
I’m an investor, but am I an innovator?
A hedge fund manager is unlikely to define themselves as an innovator. They might consider themselves as a risk manager, a speculator or even a gambler. But an innovator, not likely. However, many alternative asset managers undertake activities in both the front and back office that involve, research, the modelling of uncertainty and actively increasing the knowledge base of society, all of which sound like innovation to me.
Unfortunately, even for financial professionals interpreting what qualifies under the current tax regime is difficult. The tax code is an obtuse document, and sadly doesn’t sing with vibrant prose. The layout and format can often be intimidating or unapproachable which means that many asset managers are not taking all the operational support they are entitled to.
When tasked with looking at a firm’s operations to identify and support innovation, it is important to note that projects can be large or small and support any aspect of the firms business. They do not need to develop awe-inspiring new technology to qualify, simply extending technological knowledge within the firm itself can also qualify for tax relief.
An unsuccessful project can also qualify for R&D tax relief. The path to progress involves many wrong turns and backward steps, and HMRC is aware that just because a project. HMRC recognises that experimentation is at the core of innovation and advances aren’t guaranteed, and scrapped plans can still receive tax relief that can support the next project.
Here at RiskSave, we have a great deal of experience working alongside the innovative FinTech sector and traditional asset managers. We have found areas of innovation in both:
Examples in our hedge fund network have included
Quantitative Research to inform trade signal generation, or the incorporation of alternative data when undertaken as part of a larger project to improve systems.
Development of unique IT platforms to support risk management.
Development and enhancement of data analysis for trade processing and operations to support both vanilla and exotic instruments.
Integration of AI or machine learning into the existing investment process.
and many many more…….
RiskSave have successfully identified qualifying activities such as these at a range of managers from fully discretionary to quantitative funds, with currently a 100% success rate. In our experience the operational costs at some managers can have significant proportions in qualifying activities. Identifying these activities can lead to significant and material tax benefits.
Making your claim
For alternative asset managers, we have a great deal of experience in the sector and the time impact on operations is low. For those managers without an ‘innovation strategy’, now is the time to look closely at the benefit it can provide. Please get in touch with team@risksave.com and we can explain the process.
Typically we can perform the analysis within weeks and we don’t charge for the initial consultation.