This article originally appeared in HFM Technology in July 2018. Access HFMTechnology to read the article here. To learn more, contact us.
Rick Morris, Chief Information Officer at Linedata
There is no denying the overwhelming trend towards cloud solutions over the past decade. Since Amazon first announced its Elastic Compute Cloud in August 2006, the inexorable march to outsource compute and storage has intensified. Advisory company Gartner recently projected the worldwide public cloud services market to grow 21.4% in 2018 to $186.4bn, up from $153.5bn in 2017.
This trend initially started with Silicon Valley startups who faced little regulation and had little to lose. As cloud offerings matured, larger companies began to take notice and move non-critical workloads. Today, cloud service providers understand the criticality of security and the challenges of regulation to the point where even US government entities like the CIA and the Pentagon have begun to adopt cloud services.
While the financial services industry was initially slow to trust cloud offerings, mainly due to security, their concerns have been largely overcome in the past three to five years. The cloud providers have become the security experts, and coupling that with industry standard certifications, high availability of products and disaster recovery, and a largely predictable spending stream, cloud solutions today have a strong value proposition.
Hedge funds have followed this trend. Hesitation around regulation and security have eroded as first movers have demonstrated success. Old and new hedge funds alike are embracing cloud, but interestingly, for different reasons.
Newer, smaller hedge funds view the cloud differently than older, established firms. Smaller firms need to be more cost conscious, but it’s also about maximising potential. Lower startup costs allow founders to dream big without fear of being unable to scale quickly enough. They can get started at a relatively low monthly rate without large capital expenditure, and even without having to bring on full-time IT staff.
For the more established hedge funds, it’s about staying competitive. Established firms are looking for ways to improve operational efficiency, and cloud solutions are a proven way to accomplish this goal. The elastic nature of the cloud is ideal for running complex algorithms, data mining, and artificial intelligence workloads without having to purchase the massive compute power these workloads require.
In 2018, with new laws like the EU General Data Protection Regulation (GDPR), investors demanding more due diligence in the form of large, time consuming questionnaires, employee demand for mobile solutions and BYOD (Bring Your Own Device), and a myriad of other demands, internal IT teams can get pulled in many different directions. Handing these tasks over to a cloud provider improves efficiency by allowing key staff to focus on core competencies.
Cloud provider landscape
Today, there are a wide variety of cloud services available in the market. While the big players like AWS, Azure, and Google present very strong offerings, they are not specifically tailored to the hedge fund market. Their strengths lie in ease of deployment and low-cost options which, to be sure, are not be overlooked. However, without a knowledgeable internal IT staff to work around the pitfalls, it is possible to make headlines in highly unflattering ways.
Fortunately, this market niche has been filled by a variety of cloud and managed service providers specifically tailored to the needs of old and new hedge funds alike. These niche players understand the market, and have the ability to run industry-specific workloads, provide accredited third-party SOC auditing, and handle backups and disaster recovery with meaningful Service Level Agreements (SLAs).
The best of these players understand not only private cloud, but also have a hybrid cloud offering that allows hedge funds to take advantage of public cloud solutions where they make financial sense, while still providing the ability to run industry-specific workloads in a secure, private cloud environment.
Hedge funds across the board are finally embracing the cloud for outsourcing their IT and data management needs. Whether it’s for cost savings, predictable spend, the flexibility of elasticity, or improving efficiency, the power and benefits of the cloud are undeniable. Hedge fund adoption of cloud solutions is an established trend that we anticipate will continue to grow.