Technology Requirements: “Do we really need this?”
Defining the items you must have, should have, and don’t need at all
The Topic:
A common struggle for hedge fund operations managers lies in determining how, and how much, to
spend budget on IT. It can be difficult to understand how much a fund relies on technology, how that
technology will be managed by in‐house IT staff, and how to scale up or downsize technology when
necessary. Are your stakeholders asking you tough questions about the IT budget? The current
economic environment makes things even more difficult. How has it affected your fund’s technology
spend?
At this roundtable event, Vinod Paul, Managing Director at Eze Castle Integration, will guide participants
through the process of evaluating a hedge fund’s IT and determining the value of all the systems and
software that make a fund run, including:
- Infrastructure requirements
- Trading applications/ connectivity
- BCP/DR, including data protection
- Cloud computing/ managed services
- Regulations/ required systems, including email/IM archiving
- Voice communications
Participants will leave the event with the ability to answer tough questions like:
What is currently/ what will be required by law?
What are the industry best practices?
Where should we spend more?
What can we eliminate from the budget?
Moderated by:
Vinod Paul, Managing Director
Matthew Bretan, Senior Business Consultant
The Recap of the Luncheon:
Some of the more salient points from the presentation are as follows (a copy of the slide show is
available for download from the HFBOA website):
Overview of Eze Castle (Eze):
Eze gained 103 clients in 2009, of which approximately half were new accounts from existing
relationships, and the balance was new relationships. Approximately 25 client relationships were
terminated due to the underlying funds winding‐down, but net client growth represented approximately
20 clients. Eze has serviced approximately 2,500 start‐up clients globally since inception.
Headquartered in Boston, MA, there are 7 US offices, as well as London, Singapore (Feb. 2010) and
expectations of a Hong Kong office by the end of 2010. There are 20 employees working for Eze. Eze is
a privately held company, with over 550 Hedge Funds who rely on their services. 90% of their clientele
is from Hedge Funds, the remainder is from broker dealers, private equity/VC firms, and Fund of Funds.
The majority of their clients are Hedge Funds with between $150mm to $750mm.
Of particular interest was the statistic that 90% of their clients do not have internal technologists as part
of their staff.
Infrastructure Needs:
Eze described the need for IT as both an infrastructure risk mitigation tool as well as an opportunity to
enhance operational efficiency. The technology foundation of a firm needs to be designed to address a
firm’s current and future needs, as well as be consistent with the firms and markets economic
capabilities and climate.
The trading aspect of a firm can utilize technology to better access market data (real time market data
and analytics,) providing direct links for order executions and management, facilitating more robust and
active trading strategies, and provide pipelines to various networks, such as broker dealers, clients, etc.
An example would be tying in the front office activity with the back office via order management, trade
capture, portfolio accounting, risk, security master, and other systems. The security, redundancy, and
seamlessness of the systems working in concert and individually need to be addressed.
The IT infrastructure also needs to consider compliance issues and the applicable regulatory regime.
Both best practices and most regulatory requirements demand both Disaster Recovery and a Business
Continuity programs. Sometimes considered under the same umbrella, Disaster Recovery focuses on
accessing technology from locations other than the primary location, and Business Continuity focuses on
the distinct processes involved with the firm which starts with the various policies and procedures, as
well as the technology component associated with each. Institutional investors have been increasing
their focus on both these areas.
Additional compliance concerns, such as retention of (and access to) e‐mails, instant messaging, and
other forms of electronic communications and access to social networks can be addressed (and only
addressed) by the technology infrastructure, while remaining compliant with firm and regulatory
requirements.
Investor Relations is also a key component of the IT infrastructure. Properly capturing relationships,
facilitating periodic reporting to investors, and allowing for such data to be easily accessed and queried
are points to consider, as well as compatibility with other systems throughout the firm.
Trends include Cloud Computing and Hedge Fund Hotels
Cloud Computing is essentially a means to have applications and hardware utilized on a service or
consumption based term of usage through the internet via a provider, as opposed to needing all of the
the upfront investment, hardware, and expertise in‐house to manage the IT infrastructure. The speed at
which applications could be run can be greatly enhanced via the Cloud, as most functionality takes place
via the providers systems, not the local PC.
Hedge Fund Hotels are a more common IT solution for newer firms, whereby office space and
technology are hosted by the sponsor, with varying degrees of on‐site support and shared resources and
facilities.
Both Cloud Computing and Hedge Fund Hote
ls are possible solutions for smaller or less seasoned firms
to tap into robust IT infrastructure, without the sunk costs or in‐house expertise needed to fully support
the IT process.
Connectivity via microwave (roof top dishes) is another alternative to the more traditional T1 lines using
fiber optic cable. This technology (which was a significant part of the question and answer session)
mitigates the possible issues with cable such as telecom closet mishaps (installer or other tenants
cutting cables in risers), work on the ground beneath the street that could interrupt the cable network,
etc. Mitigating such risks could save time and money by negating the need to execute Disaster Recovery
or Business Continuity Plans. Speed and cost were deemed to be comparable to cable, with the major
limitations being Line of Sight requirements, and certain high intensity light interference issues.
When asked, Eze mentioned that their services have been paid by both managers and funds, although
this decision is made by their clients, which they do not offer guidance on.
In summary, there are common functions within each firm that are addressed and enhanced by the IT
infrastructure. These functions need to be designed and evaluated not only based upon needs for
today, but also with growth/contraction concerns and changes to the economy and regulatory
environment. Utilizing an out‐sourced vendor can assist asset managers with the proper design,
implementation, and maintenance of such systems and can help ensure business viability and
competitiveness from an IT and Due Diligence perspective.
By Dan Federmann
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