Alternative Asset Managers and Public Cloud: Pros and Cons
By Chris Grandi, CEO at Abacus Group
Historically, the alternative investment management industry has been slow to adopt new technologies. The primary reason is that these firms want their technology to work all of the time. Downtime could result is missed trades, which could translate into significant losses.
Thus, managers often wait on more mature technology and providers to mitigate this risk. This was particularly true with cloud computing, which was viewed skeptically by many asset managers until recently. Now, as public cloud computing is approaching its 20th birthday, investment managers are moving to this mature and very effective platform. A 2018 report by Deloitte indicates that more than 75 percent are or will soon use the clouds and are investing less in internal physical IT infrastructure. Gone are the days of asset management firms buying physical servers and storage area networks and running them out of the firm’s office.
But despite the improved experience with cloud services, managers will need to adjust to this paradigm shift and best understand the new risks this technology model presents. Here are a few considerations:
- Cloud Security: The importance and relevance of cybersecurity to asset managers cannot be overstated. They must have a complete understanding of where their data is located. This can be challenging with public cloud providers, but it is not impossible. When structuring the agreements with any IT provider or software provider, an asset manager should request documentation around how and where they store data, as well as any documentation, reports or audits they have with respect to their cybersecurity programs.
- Internal Security: Managers need to understand that once they achieve reassurance around the security of a specific cloud platform, they are still far from safe. Most cybersecurity incidents occur in the office, and oftentimes happen with computers, mobile devices or with local networking equipment. It is very important for managers to invest in cybersecurity training for their employees and hire an external security company to test their local network and run penetration tests to ensure all components outside of their third-party cloud services are secure.
- Work Flow Changes: Managers will need to understand and accept that their service levels and work-flows will change. The pre-cloud model allowed managers to lean on specific individuals within their organization or an outsourced IT firm to provide them with white-glove service, expedient response times, and customization to their specific needs. As the model now moves into the public cloud, managers will have to get used to calling into remote help desks, where they may not have any relationship with the individuals they are relying on to provide them service. Most of the service levels provided by public cloud providers are very good; but experiences will differ from provider-to-provider. We see a trend developing where managers hire an outsourced IT provider to manage their on-site IT needs along with their relationship with public cloud providers.
- Downtime is inevitable: As difficult as it may be, managers will have to accept there will be downtime. All cloud providers will provide a Service Level Agreement (SLA). Managers need to know that when there are outages and SLA’s are not achieved, the compensatory amount is typically very small with respect to the pain they may have felt during the outage. The move to public cloud services is very similar to the move to centralized power/electricity distribution. This move will bring great efficiencies to us all; however, when the power goes out, you are going to have to wait for it to come back on. This lack of control will be challenging for fund managers as they move their businesses in this direction.
- Cost management: Public cloud services offer an entirely new pricing model which allows businesses to only pay for services when they consume them. The ability to turn computing resources on and off at-will should help reduce the overall cost of running a firm’s baseline IT services. The challenge managers will face is with those areas of their technology stack which are not designed to be turned on and off. Much of their front/middle/back office technologies are still required to be run 24/7. When moving these applications into a public cloud, it is very possible that the cost to run these applications will go up – and sometimes the cost increase will be dramatic. It will be important for managers to better understand the infrastructure requirements for the applications they are using. This understanding as well an analysis of the costs to run these will greatly help managers control their costs. We believe there will be an increase in private cloud adoption with respect to these applications, as fairly often these private cloud services will offer substantial cost savings versus moving them into the public cloud.
In summary, cloud services (both public and private) will be a positive change for investment managers. However, the importance around understanding how asset managers use these services is very important to achieving a positive user experience for the firm and its and its investors.
Chris Grandi is the CEO and Founder of Abacus Group. He has led the company since its inception in 2008, growing it into an award-winning global firm that provides outsourced IT services and a combination of leading-edge private, public and hybrid cloud solutions to over 550 investment management firms. Chris has extensive experience in the FinTech industry, having previously been the President of Eze Castle Integration. He also co-founded, and later sold, Dynamic Transactions Inc., which developed internet payment software for commercial banks. Early in his career Chris worked for Goldman Sachs. He has a BA from UCLA and an MBA from Harvard Business School.
Fixed income asset managers need to adapt the way they trade derivatives under new regulations.
Fee compression is responsible for 80% of the decline.
Firm positions itself as an execution partner for the buy-side trading desk.
Increasing workflow and pressure on trading desks is driving investment managers to adopt greater automation.
The Investment Association's new hub is supporting fintechs based in the West Midlands.