Hybrid Cloud For Hedge Fund Managers

Compliance, security and competitive advantage

Originally published in the July | August 2016 issue

While the financial services industry has traditionally been a bit more cautious and slower to adopt cloud, there is little doubt as to the benefits that it can bring to organisations. One of the main benefits of cloud is, of course, cost saving. According to a 2013 NSK Inc survey 82% of companies surveyed saved money moving to the cloud and 14% downsized their IT following the move. As the technology has matured and challenges have been effectively overcome, there is more focus on exactly how to optimise cloud in order to fully realise its potential. In a landscape characterised by regulation and compliance, any new technology is subject to scrutiny with a major focus on security. However, new technologies can also help organisations meet those requirements for security and compliance. Looking at cloud computing in the hedge fund market, for example – the cloud model has an increasingly important role to play for both established funds and start-ups.

How can cloud help?
The obvious place to start is by looking at the drivers for cloud adoption — reduced costs, increased speed of technology deployment, disaster recovery capabilities, improved flexibility, scalability, and simplified IT management.

Looking specifically at cost, adopting cloud computing, or increasing its use — be it private, public or hybrid cloud — can bring expenditure down. Cloud technology reduces CAPEX and uses flexible cost models such as pay-as-you-use. It also reduces the need for hardware. This is especially true when it comes to the use of public cloud. Of course, while this cloud model may not meet all the IT requirements of hedge funds, it does have its advantages related to cost and hyper- extensibility. It is the ideal environment to host testing and development infrastructure, as well as day-to-day applications, such as email.

For testing and development, setting up the initial environment is comparatively quick, easy and cost-effective. Public cloud can also be extended in terms of capacity simply and cheaply, and once the project is finished, it can be ‘turned-off’ allowing organisations to pay for this capacity only when it is needed. Using a private cloud environment for this type of application is more expensive and can be more difficult to provision quickly.

Security is still important
Private cloud does have its advantages — especially in terms of compliance and security. According to a 2016 Rightscale report, private cloud grew faster than public cloud last year with 31% of organisations running more than 1,000VMs in a private cloud. Hedge funds can place their front and back office platforms into private cloud, allowing them to keep greater control over data such as financial records and client communications.

Looking at the bigger picture, cloud service providers and datacentre operators have the expertise and technology to make sure data is protected both physically (24/7 security, access control) and virtually (certifications such as ISO 27001, encryption and resiliency),which only adds to the levels of security a hedge fund company demands. In the hybrid IT environment, for example, hedge funds can leverage those greater levels of security because cloud providers have usually made a large investment in securing their infrastructure — much more than a single hedge fund could afford if everything was hosted in-house.

Getting the most out of cloud
Today, the key phrase is hybrid cloud. For the longest time cloud discussions focused on private versus public models. But as the market has matured and the understanding of cloud and its benefits has grown, the use of hybrid-cloud environments is one of the ways in which business can optimise its use of technology. This is no different for hedge funds. While adoption of hybrid cloud in this market is relatively slow, the flexibility, extensibility and security it offers is ideal. For start-up hedge funds hybrid cloud is the perfect solution in terms of versatility, speed, cost and functionality, which is where there has been a significant take up of the technology. Established hedge funds, however, are slightly slower in realising the benefits as they have a number of issues to contend with, notably the presence of legacy systems and the cost and risk involved in a migration to cloud. Add heightened security capabilities to the benefits and migration makes even more sense.

For organisations considering a move, either due to aging infrastructure, changes in operations or a desire to capitalise on these benefits, it doesn’t necessarily need to be one that takes place overnight. Instead, the beauty of the hybrid cloud model is that it supports a slow transition — for example starting with colocation and growing into the right combination of private and public cloud services as risk is mitigated, compliance requirements are understood and budgets are developed. And once again, this is where working with a trusted cloud provider can add value to the process and ensure the benefits of hybrid cloud are realised.

Technology exists to make lives easier — from business and travel, to social and medical. When it comes to specific technologies, such as cloud, organisations in industries with a strong focus on compliance, risk and security can really take advantage of its maturing, inherent potential and, indeed, the expertise from service providers to do just that; make their lives easier, streamline operations and ensure business needs are effectively met.