Technology’s march has not sidestepped the hedge fund industry. Savvy hedge fund managers are reducing operating costs, enhancing performance, and meeting regulatory challenges by adopting the best of what information technology has to offer. For many in the industry, that means moving to the cloud.
What Is the Cloud?
Apart from being a popular buzzword in the techno-geek community, it is basically a synonym for the internet. Google Drive is an excellent example of public cloud computing. Using the internet as a gateway, Google Drive allows users to store data as well as utilize software for word-processing, spreadsheets and slide presentations. In the vernacular, this translates to cloud storage and software as a service (SaaS), respectively.
Why Move to the Cloud
There are many arguments that can be made in favor of transitioning to the cloud. Such a move, in concert with a quality provider, can create cost saving opportunities. The immediate benefit of off-site data storage relieves the hedge fund of many disaster recovery concerns and related compliance issues, some of which arise from Sarbanes-Oxley. Couple this with anytime, anywhere data access and one can almost hear a collective sigh of relief from industry CIOs.
As funds grow, so does the need for robust hedge fund technology. This can be costly, especially for smaller funds, and outsourcing to a cloud provider is typically less costly than building out in-house infrastructure. For example, personnel costs alone can be crippling.
More to the point, employing the cloud allows small hedge funds to match the capabilities of larger rivals, while making a smaller investment than creating their own infrastructure would demand. This levels the playing field for funds competing with larger firms for investment dollars.
Things to Consider
Vetting a provider with respect to cyber security capabilities is a primary concern. Funds need to engage providers with a proven track record of successfully moving firms from in-house infrastructure to the cloud. Managers should check references and ensure funds of similar size have had successful experiences with the provider they are considering.
A transition to cloud services doesn’t require having deep technical experience in-house, however, it does require a project champion who has sufficient expertise to work with the could based provider and manage compliance related issues.
Although the on demand, scalable nature of cloud services can make it much easier to estimate costs based on future growth, there is a cost. Weighing the total cost of in-house infrastructure (hardware, software, communication room and staffing) against the monthly cost of a cloud based solution is an important analysis for the firm’s CFO to complete.
Closing Thoughts
Each hedge fund firm must make a decision that reflects its unique circumstances. The points made here are but a few of many which require evaluation ahead of any transition to the cloud. Hedge fund firms which fail to pursue the operational efficiencies current technology provides will certainly find themselves at a competitive disadvantage. Investors seek an edge and hedge fund firms need to demonstrate their ability to provide one.
To learn about making the transition to the cloud, watch our training session on Hedge Funds in the Cloud.
