Hedge Funds Take to the Clouds
Hosted applications or infrastructure delivered via the cloud offer a compelling value proposition for hedge funds. By outsourcing noncore components of their operations, funds stand to reap substantial cost savings as well as make their systems more resilient, as was demonstrated during Hurricane Sandy, when firms whose offices were shut down were still able to function from remote facilities.
“Cloud technology is dramatically changing the way the hedge fund industry thinks about and manages IT,” said Mary Beth Hamilton, vice president of marketing at Eze Castle Integration. “Over the last three years, we have seen a significant shift from on-premise IT to cloud computing in the hedge fund industry.”
The cloud allows new hedge funds to launch more quickly by removing complexity and cost barriers typically associated with building an enterprise-grade on-premise IT infrastructure. For established firms, the cloud enables them to easily add and manage new applications such as an order management system (OMS) and accounting systems.
“We expect preference for cloud-based services to continue increasing until it is the standard for IT delivery,” Hamilton said.
Eze Castle operates a hedge fund hotel in midtown Manhattan, called The Eze Business Suites, for start-ups and established firms seeking to establish an East Coast presence. “Clients in the hedge fund hotel use our Eze Private Cloud as their complete IT infrastructure, and when they move out to permanent office space, the transition is simple,” Hamilton said.
Cloud computing, in its simplest form, is internet-based IT where all the resources required to run an application are delivered on-demand, like a public utility. In general, a client will pay on a monthly usage basis rather than investing in an expensive installation up-front as well as ongoing maintenance.
Among the benefits of cloud computing are reduced costs. “Cloud computing helps clients convert capital expenditure to operational expenditure,” said Kristen Schwecke, director of marketing at SS&C GlobeOp. “There is no upfront cost for installation or ongoing maintenance, nor the staff to run the systems.”
Redundant sites increase reliability, making cloud computing solutions suitable for disaster recovery and business continuity. Automatic dynamic provisioning of the cloud allows users to scale performance loads on a self-service basis.
Another befit is ease of maintenance. “Cloud-computing applications are easier to maintain, since they are not installed on each individual’s computer, but rather centrally located where they can be updated and maintained by the service provider,” Schwecke said.
Hedge fund managers need to exercise due diligence when selecting providers of cloud services, in large part because they have a fiduciary obligation to investors to do so.
“It is important that hedge funds complete their due diligence on service providers and understand the DR and security they have in place,” said Hamilton. “You want to ensure the provider employs strict access controls and security practices that will prevent and detect intrusions to maintain the safety of the firm’s data and infrastructure.”
When a new hedge fund is selecting technologies, Eze Castle Integration always recommends that it think about what operations will look like one and three years out, as this will drive decisions today.
Also, when it comes to cloud computing, it is important to understand the difference between public and private cloud offerings as they relate to hedge funds.
“Few public clouds offer or support vertical-specific application integration, so as a firm grows and requires a portfolio accounting platform or OMS, it will find that these applications are incompatible with current cloud offerings,” Hamilton said.
Mid-sized asset managers will also look to mergers to increase scale.
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