Cloud Changing Cost Dynamics for Hedge Funds
Cost is the driving factor when it comes to considering a move to a cloud service.
“The prospect of transferring up front, costly capital expenditures to longer term, recurring operational expenditures is appealing to firms and a key reason adoption of cloud services is increasing,” said Mary Beth Hamilton, director of marketing at Eze Castle Integration, a technology provider. “With the cloud, firms pay a clearly-defined, per user per month cost for the designated service.”
In the first half of 2012, Eze Castle Integration along with IDG Research conducted a hedge fund cloud adoption survey which found that 85% of investment firms view the use of the cloud for reducing IT infrastructure investments as important or extremely important.
When evaluating the return on investment (ROI) of a cloud service versus an on-premise solution, firms must consider both direct costs—such as power, real estate/floor space—and indirect costs, such as network and storage infrastructure and IT staff.
“Smaller firms often realize cost savings from their cloud investment fairly quickly since they are able to avoid many direct costs and take advantage of economies of scale achieved by the cloud provider,” Hamilton said.
Regulations such as Fatca, Form PF and others will require hedge funds to perform a number of functions that they can’t or don’t do today.
For instance, hedge funds will need to create standardized and scalable compliance programs to govern internal operations.
“Email reviews, for example, will create a reliance on message archiving solutions that will enable fast retrieval of information in order to respond to audits,” said Steve Banda, product manager at Eze Castle Integration.
Additionally, record retention will be a key requirement and firms will be expected to respond quickly to audits with either paper or electronic formats.
“Typically, a five to six year retention is required (via Rule 204-2),” said Banda. “Also, retention of Apple messages can be an issue. So, in general, it’s probably best to put programs in place internally to restrict users from using message types that cannot be tracked and retained via technology.”
The primary reasons to adopt cloud computing are agility, flexibility and simplified IT operations.
“Although hard to measure, a more agile company will be able to provide better service, and take advantage of opportunities that may have previously passed them by,” said Banda. “So, in this respect, it may have beneficial implications on ROI. There is an opportunity cost of not going to the cloud that should be factored into ROI.”
Cloud also supports delivery of apps on mobile devices such as iPad, iPhone and other handheld devices.
“Mobile devices are changing the way users access and consume information,” said Hamilton. “Cloud services have the ability to simplify the way users access files and applications. With a cloud service, users can log-in from virtual anywhere and gain access to files and applications that have traditionally been only on a desktop.”
No longer is information tied to a specific location, too.
“We are starting to see an uptick in adoption of hosted mobile device management (MDM) solutions,” said Banda. “By using such an MDM solution, firms can ensure the secure delivery of applications to smart phones and tablets.”
Additionally, unsecure applications can be blocked from download, files can be encrypted and devices can be password protected and remotely wiped if necessary.
“Firms gain a lot of power with mobile device management solutions, which is critical given the types of information hedge fund employees have access to,” said Banda.
The jury remains out on future gains in e-trading.
Liquidity and data transparency were top buy-side trader worries.
A look at the forces shaping technological advances in the world of data management.
Larger anonymous block orders can be traded in compliance with MiFID II.
Grossman was formerly CEO of Barclays Global Investors.