With the shift towards the importance of institutional allocators in the hedge fund industry, there has come more of an emphasis on the operational infrastructure and resilience of the fund management firms allocators invest with. Start-up and established hedge funds are finding that they have to allocate more of their budget to ensuring their firms measure up to increasingly stringent operational and systems criteria if they are to win and retain institutional mandates.
Eze Castle Integration, which won the award for Leading IT Infrastructure Provider from The Hedge Fund Journal this year, has been ably demonstrating what can be achieved if new technologies that have become more widespread in the last four years are applied to hedge funds. It is an exciting time to be working in the hedge fund technology space, as hedge funds, with their small staff base and entrepreneurial cultures, are able to take advantage of such opportunities quickly.
Eze Castle has been promoting a cloud-based approach to operational integration, employing its secure and geographically diverse data centres, coupled with a highly scalable approach to systems implementation. Just as you might pick the apps you want to use on your iPad, so Eze Castle argues that hedge funds should be able to pick the ready-to-deploy technologies they need in a format that is swift and cost-effective to implement. With this comes the firm’s tried and tested on-site support coupled with 24-7 international help desks. It will be music to the ears of embattled COOs wondering how they will meet new operational agreements within budget.
Eze Castle has been providing a Eze Private Cloud for five years now, and has a little over 2000 users of this service. It has over 60 applications and employs two data centres in the UK, four in the US and two in Asia. It has grown significantly with substantial investment from Eze Castle, and leverages technology from the likes of VMware, Dell, Cisco Systems and NetApp.
“When you work with a private cloud provider you get the benefits of management, security, scalability and disaster recovery,” says Bob Guilbert, managing director at Eze Castle Integration.
Clients of Eze Castle’s Eze Private Cloud have the flexibility to dynamically add applications into the environment with additional disaster recovery support for each application. This includes Microsoft back office applications, order management, portfolio management, risk and CRM systems. Much will depend on the fund’s trading strategy and the tools needed to support it, but the choice lies entirely with the fund manager.
The cloud-based offering from Eze Castle really grew out of the demand for disaster recovery environments from hedge funds. “We would mirror [hedge funds’] entire production environment, hosting anything they had in production including all their applications,” explains Guilbert.
“We gained tremendous insights supporting a variety of applications in the disaster recovery space and then took the knowledge to the next level to provide a hosted application environment that could be delivered via a private cloud.”
Eze Castle also works with third-party vendors like Advent to host their applications in the cloud. Two years ago several key software vendors carried out certification processes to ensure that third-party cloud providers like Eze Castle were up to the mark when it came to secure hosting of their technology: some vendors will not allow their applications to run on just any cloud – they need to ensure such facilities meet stringent security criteria, for example. Standards have to be higher than in ‘retail’ clouds if expensive third-party software is to be hosted.
The Eze Private Cloud is split into the Eze Managed Suite (Microsoft productivity products with connectivity to mobile devices, including file and back-up services, and built-in disaster recovery) and Eze Managed Infrastructure (a completely customisable environment designed for hosting). The latter allows for hosting of customised systems and applications a hedge fund might have developed in-house.
Reducing capital expenditure
Since 2008 hedge fund firms, like many other financial institutions, have remained cost-conscious, and really only want to spend money on the technology they have to have. Cloud computing allows businesses to reduce their capital expenditure in the IT silo while increasing operational costs and thereby enjoying significant tax benefits. On top of this, there is less of a concern about maintaining in-house communications rooms or data farms, as a cloud-based approach brings the pay-as-you-go software as a service technology model with it.
“We can also support clients’ own environments,” says Guilbert, “either off-premises, in their office or in a data centre which we would support. That integration capability is delivered via our service organisation which provides local on-site support complemented by an award-winning helpdesk which is manned 24/7, around the globe. This past year we won an award from the Help Desk Institute, a globally recognised organisation that saw we were providing the best outsourced help desk services to clients.”
Hedge funds can benefit from Eze Castle’s scale too: managers can significantly cut IT overhead while tapping into Eze Castle’s institutional-grade infrastructure, complete with round the clock maintenance and monitoring, significant costs that would otherwise have to be borne by the asset manager. This level of outsourcing also pays dividends when investing clients carry out their operational due diligence visits on fund managers: Eze Castle is already an established and respected name in the alternative investments industry,
and its presence as part of a hedge fund’s operational infrastructure will help to reassure prospective clients.
Eze Castle’s services canbe tailored to a range of fund sizes and are not simply designed to support the big multi-strategy managers. While bigger hedge funds typically have their own internal infrastructure, a cloud-based environment can add value across the spectrum, regardless of the size of the operation.
“Funds starting up will be looking at the cost factor and that ability to go into a private cloud environment changes the whole dynamic from one of capital expenditure to one of operating expenditure,” explains Guilbert. “That is very compelling to support the launch of the fund: it offers predictability in terms of what their cost is going to be. They will have a complete view to their future expense.”
Accurate pricing in this respect stems from a clear picture of a fund manager’s IT needs, based on which applications or services he is using and how many people are using them. More computing resources can then be added seamlessly as and when there is a requirement, including servers, storage and bandwidth.
The early stage fund manager also benefits from having a major IT provider in the wings that regularly passes operational due diligence checks. Says Guilbert: “If an investor is going to put money into an emerging fund, they are going to ask who the service providers are and what scope there is for them to support a client who might have a disaster in terms of flood, fire or anything along those lines.”
One other advantage that a private cloud-based model yields is the fact that different systems are often already integrated, thereby avoiding headaches that occur for a fund if one third-party software system does not want to talk to another. Bringing a new system in-house can take months of road testing before it works properly, consuming hundreds of man hours and creating a distraction for a lean investment management firm. A private cloud-based model gets around much of this from the start, avoiding many of the nightmare stories one hears from managers who were starting their firms 10 or more years ago.
Guilbert also points out that much effort has been expended to ensure client data is isolated, with multiple steps required to authenticate who has access to client information, and how it is logged, recorded and audited.
As regulators become more focused on historic record keeping when inspecting funds (and we are seeing this increasingly in the US market from both the SEC and CFTC), the ability to demonstrate robust back-up off-site is becoming less of a nice-to-have and more of a must-have.
Last year Superstorm Sandy opened eyes once again to the need for appropriate disaster recovery solutions, both in the fund management and the investor communities. The SEC and FINRA have even been polling hedge funds in the wake of the storm to see how firms coped and whether or not clients were compromised in any way. There is obvious concern amongst financial regulators that the entire investment management industry be robust enough to deal with unforeseen occurrences.
The storm itself demonstrated just how much further the industry has travelled in this respect since the dark days of 9/11, and Eze Castle has continued to be one of the leaders in providing effective disaster recovery solutions to this industry. As Guilbert says: “We go out of our way to ensure that clients have dedicated resources on the disaster recovery side. Unless you build a cloud that provides full disaster recovery for each client, it becomes a foot race amongst clients to be the first to take up the capacity in the event of a major disaster. A hedge fund doesn’t want to be in
Eze Castle’s solutions fully incorporate disaster recovery into the Eze Private Cloud service: managers have to make a conscious choice whether to use it, but if they do, they receive dedicated resources to support them. In the event of thesuperstorm, a number of Eze Castle clients activated disaster recovery services in advance of the storm’s arrival, transferring their production environments to Eze Castle’s secondary disaster recovery facilities. Because the exchange was closed on the Monday after the storm’s arrival, it became less of an issue. The nature of the disaster meant that fund managers still had some warning and were able to activate their disaster recovery facilities following a period of watching Sandy’s progress towards the eastern US seaboard, but as Guilbert points out,
not all disasters happen like this. A fire or a burst pipe can’t be planned for – you have to be able to react regardless.
“One of the things we pride ourselves on is the amount of testing we do with our clients: we are very strong advocates of testing their disaster recovery systems and environments,” Guilbert explains. “We make sure we test it with the key principals in the organisation, working with everyone who has to operate out of that DR site. We can look at this on a quarterly or biannual basis.”
There is a definite shift within the alternative investments industry towards the use of the cloud, as there is within the broader business world. Eze Castle’s Guilbert estimates that 30% of hedge fund firms in the US are now making use of the cloud in some capacity and sees that trend swinging rapidly towards the 50% mark in the next couple of years. Eze Castle will no doubt remain at the forefront of this trend.