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19 November 2012

Boosting Hedge Fund Operations With Cloud Computing

At a time when markets are uncertain and returns are meager, cloud computing can offer investment firms an efficiency lift and a competitive advantage. In fact, eight out of 10 investment management firms are currently using or planning to use the cloud.

At a time when markets are uncertain and returns are meager, hedge funds and investment firms are eager to jumpstart their operations and provide investors with a confidence boost. In this environment, the art of leveraging technology for both an efficiency lift and a competitive advantage offers an allure from which many firms are seeking to benefit.

The cloud phenomenon

The past four years have prompted a shift in thinking for many, if not most, hedge funds. Budgets have been tightened in some cases, resulting in personnel changes and workflow evaluations. While reducing technology spend may seem like a logical next step, the reality is that investment firms rely too much on technology to meet their needs and support their trading operations. The answer for many, therefore, has been cloud computing.                                 

Cloud services have been widely adopted throughout the hedge fund industry. According to a joint survey published by IDG Research and Eze Castle Integration in June 2012, eight out of 10 investment management firms are currently using or planning to use the cloud in the near future. Cloud computing can support front-, middle- and back-office functions and applications such as client relationship management, order management and accounting systems, data protection and disaster recovery, and infrastructure management.

Investment firms can leverage the cloud in a variety of ways. A small firm, for example, may use a private cloud to fully outsource its IT infrastructure to a third party, relieving the firm of any up-front capital expenditures as well as the burden of managing and monitoring the technology. A larger firm could certainly opt to go the same route and outsource the bulk or whole of its infrastructure. Alternatively, it could elect to leverage the cloud for application hosting purposes or individual solutions such as data backup and disaster recovery. Regardless of how extensively a firm seeks to utilize cloud computing, there are certainly cost-saving benefits to be had.

Another traditional benefit of cloud computing is flexibility. First off, firms are only required to invest in and pay for the resources and capabilities they need. With traditional infrastructure models, firms must invest in advanced servers and storage devices that generally come at fixed costs. Cloud computing is uniquely flexible, operating on a utility basis (usually per user, per month), allowing firms to pay as they go and only for what they need.

In addition, budgeting becomes a much easier task with the cloud. With fixed, predictable costs, firms can eliminate the guesswork traditionally associated with technology refreshes and upgrades.

Traditional, hardware-based infrastructures require significant up-front capital expenditures (CapEx) – funds that many small firms, in particular, do not always have access to as they are starting up. With cloud services, CapEx is essentially eliminated, as the burden of infrastructure management falls on the third-party cloud provider, which is responsible for purchasing equipment, adding resources and refreshing hardware. The firms themselves are responsible for ongoing operating expenses (OpEx), which translate to predictable costs that scale with the company and leave out any surprises.

Scaling up is a cinch, too. Adding users or resources used to take days or even weeks, depending on the specific requirements. With the cloud, firms can scale up in a matter of hours. Space, storage and RAM are simple to add, as there is no need to wait for equipment to be ordered, shipped, configured and installed. Cloud computing also supports a sharing of resources among multiple users (multi-tenancy), which allows for increased utilization and efficiency.

Evolving technology

Application hosting via the cloud is a specific way that firms can look to increase efficiencies with their technology. As application vendors continue to leverage software-as-a-service platforms, hedge funds and investment firms are reaping the benefits. As with back-end infrastructures, hardware for financial applications is purchased and managed by a third-party service provider, and firms are able to implement applications faster than ever. Again, user and/or storage additions come at fixed costs, ensuring predictability of the budget.

Outside of cloud computing, there are other ways in which firms are making changes to increase their efficiencies and workflows. One way to go about this process is to perform an internal technology audit. Through this process, firms can identify mission-critical versus non mission-critical functions and applications and pinpoint areas for improvement. A simple exploratory procedure may identify applications or research services that are not being used or may no longer be necessary; this will weed out non-essential technology and, in turn, reduce costs. An audit may also help you determine which functions are better manipulated by systems and which may be better operated and managed by staff.

Looking ahead

In the near future, there is no doubt that hedge funds will continue to seek opportunities to reduce costs and increase efficiencies across the board -- whether that means changes to technology, personnel or other functional areas of the business. Particularly as regulations change and investors become more technologically savvy, firms will be expected to boost their operations and provide clear transparency into the systems and processes they are using to support their daily operations. The cloud opens up a world of new opportunities for both small and large funds and will continue to offer firms a path to cost-savings and operational excellence.

Additional Resources:

Bob Guilbert is responsible for leading all of Eze Castle Integration’s marketing, partnership, and product development functions. The scope of his efforts ranges from maximizing the value of the company’s brand, establishing core strategic partnerships, and developing new revenue streams for the company.

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