Cloud technology gives managers an operational edge
“Last November we surveyed over 100 hedge fund managers on their attitudes towards using the cloud, their concerns from a security and data ownership perspective and over 87 of respondents said they were using the cloud in some shape or form today,” comments Bob Guilbert, Managing Director at Eze Castle Integration, a provider of IT solutions and private cloud services to more than 650 global alternative fund managers. “Last year we brought on 102 new clients, 42 of which were start-ups.”
Chris Nash is the Chief Operating Officer at Senrigan Capital, a Hong Kong-based USD340mn event-driven hedge fund. Whilst security has become less of a concern (due to advances in encryption), Nash says that there are still legal questions to be considered regarding the domicile of the data: “I don’t think use of the cloud in itself creates transparency problems, though a lack of attention to the different security issues posed by both the cloud and the use of mobile devices certainly could lead to breaches that could lead the manager seriously exposed.”
Over in New York, Navatar Group, the leading provider of cloud-based CRM solutions to Wall Street, has seen a 50 per cent increase in adoption among hedge fund managers over the last 12 months. “We now have over 500 managers using the Navatar cloud,” confirms Alok Misra, co-founder and principal at Navatar, adding:
“Managers require not only better technology, they need it to be connected to reduce manual tasks. Our role over the next couple of years will be to do things that funds can’t do today such as find the right investors and market their funds.”
How one defines the cloud is open to debate. There are plenty of software vendors now offering cloud solutions that are essentially an elaborate ASP; that is, the data sits in a cloud for single tenants and relies upon multiple databases. Firms like Liquid Holdings and Navatar Group offer true cloud solutions that are multi-tenant, single database.
“When I talk about a single database what I’m really talking about is a comprehensive data management solution born in the cloud,” says Robert O’Boyle, Executive Vice President and Director of Sales & Marketing at Liquid Holdings. “You have all the order and execution management data, risk and portfolio data stored in a single database and you’re running computations off of that. It’s already in the cloud. What other organisations are doing is pulling information from other applications then standardising it for accessibility via the cloud.”
By using the multi-tenant cloud, it means that when Navatar makes enhancements to its CRM products all of its clients get to benefit at once.
“Our product team is constantly working in the background making improvements to our CRM products often without clients even noticing. At the backend there’s an awful lot going on,” says Misra.
O’Boyle concurs, noting that the firm’s approach is to ascribe an “agile development methodology. As our platform is multi-tenant it means we are able to release functionality to our clients much quicker than locally installed or hosted providers who have a single tenant architecture.”
Semantics aside, the real benefit for managers who move to the cloud is that it becomes less of a capital expenditure.
“There is no responsibility to refresh technology every few years. We support over 80 applications on our cloud. If a manager has written their own application, they can access it via Citrix,” explains Guilbert.
HedgeGuard is a Paris-based firm whose cloud architecture gives end users full OMS, EMS, risk and compliance tools to run their fund operations.
“There’s a saying by Archimedes: ‘Give me a fulcrum and a lever and I shall move the world’,” muses Imad Wardé, Founder and Managing Director of HedgeGuard. If technology is the lever, then HedgeGuard is the fulcrum.
“Large established hedge funds have comprehensive IT infrastructures that are managed by lots of people and cost a lot of money. They are not as agile as a cloud infrastructure. Start-ups definitely have an edge over large managers when it comes to technology,” says Wardé.
Having previously worked for a hedge fund, the solution conceived by Wardé is based on the managers’ perspective and how they need to solve mission critical problems with technology. He is quick to point out, however, that most cloud solutions are just an enabler for mobility: that is, they offer a ‘virtual desktop’ infrastructure that sends an image of the fund’s data but which is not adapted to the specific device.
“Everybody today is selling their solution as if it were a cloud solution but it’s not. They aren’t sending the data or intelligence. That’s exactly what we are doing with HedgeGuard. The next version we plan to release will be sending data and displaying it the way it should be displayed on the mobile device and end-users will have an interface for each operating system.”
This is what Wardé refers to as a client cloud architecture. Rather than a virtual office, HedgeGuard will offer its clients a true ‘mobile office’.
“It’s not only the software that a manager can access from anywhere it’s also their work files, their data, their emails. When a manager connects to the cloud to access their PMS they want to see the whole picture. That means, using a laptop, no matter where they are they can access all the fund’s data and intelligence. This will allow the office to be truly mobile,” comments Wardé.
One of the latest developments at Liquid Holdings follows a similar theme to the ‘mobile office’ Wardé refers to. O’Boyle says that the team is focused on creating a dynamic touch-optimised, native web version of its existing tablet applications “so that a manager can access deeper investment management capabilities to run their business with them wherever they go”.
“We’re taking what we already offer our clients today on a tablet and making the experience ‘extremely-optimised’ with touch screen, end-to-end investment management capabilities,” says O’Boyle, who continues:
“The institutional marketplace is focused on alpha generation as well as capital preservation.
Investors want to understand the fund manager they park money with is able to manage investments at all times including while he or she is away from the office. It means having actionable front-office controls in the palm of your hands, over and above simple static reporting. The concept of being able to execute and manage trading or hedging strategies from a mobile device, whether it’s DMA (direct market access) or dynamically setting and tracking risk limits in real-time from the mobile device, at any time and everywhere is something that institutional investors like a lot.”
ECI’s Guilbert notes that vendors are now using mobile device management software to wipe data remotely from mobile devices; this is particularly useful for hedge funds. The last thing the marketing officer wants is to loose their iPad containing sensitive portfolio data.
“Managers can log on to Citrix (connection software that allows applications running on the cloud to be published on the desktop) to gain access to their applications on our cloud. As the screens get updated on the servers those changes get sent over to the device being used. It’s called screen scraping technology. They can access their PMS, OMS, CRM data on the cloud and share it directly with potential investors,” says Guilbert, further illustrating how cloud technology is helping managers utilise data smartly, efficiently, and most of all, remotely.
Misra says that one of the reasons for continued cloud adoption is that people are simply becoming increasingly frustrated with the fact that their technology does not connect to anything else. One of the key features of Navatar is that it integrates to Preqin for managers to access market intelligence on investors as well as seamlessly integrating between each and every Navatar CRM module.
“Each product has evolved whereby certain clients were using one product for specific needs and another product for other needs and this has allowed us to build a range of inter-connected products. A lot of managers today, for example, run multiple funds, sometimes both hedge funds and PERE funds, so they need that connectivity,” says Misra.
Navatar Hedge Fund, for example, links seamlessly with Navatar Private Equity. Everything is running from a centralised system. Often, managers have a scattered IT infrastructure built on multiple systems. This makes it hard to know who they are interacting with and who they should be interacting with. Navatar Hedge Fund CRM brings everything together and helps managers achieve an edge.
Unlike investment-related technology, which is latency-dependent Navatar focuses on investor-related technology, which is all about connectivity.
“How can I make sure I have access to the latest information about my investors? How can I manage the ongoing relationship? That gets into CRM tools, virtual data rooms, databases etc, which is what we are consolidating on the cloud,” explains Misra.
Cybersecurity on the SEC’s radar
Last month ECI announced that it had expanded its Information Security Consulting Service to help firms satisfy the SEC’s cybersecurity guidelines issued in April. Contained within these guidelines are a series of questions covering everything from monitoring cybersecurity, business continuity plans, WISP (Written Information Security Policy), physical security etc.
What ECI’s team will do is to help managers by creating the WISP and address the administrative and technical safeguards a firm needs to withstand a cybersecurity incident and demonstrate preparedness. It has been writing WISPs for clients since 2009.
“The SEC are going to look at 50 different firms – broker/dealers and registered investment advisers – and see how they stack up in relation to these questions to essentially identify best practices. The whole point is to prevent firms falling victim to cyber attacks, hactivism; anything that adversely affect the markets. What we offer our hedge fund clients is the ability to answer questions effectively from a technology perspective to help them respond to DDQs. Part of this will be to write the WISP,” explains Guilbert.
The fact that the SEC is now treating cybersecurity seriously shows the level of responsibility that technology providers have to their clients, especially those running billions of client assets.
But in terms of overall security, the cloud providers are pretty upbeat and are certainly keen to stress the point that in most instances they are far more secure than hedge fund managers.
“We’ve taken the necessary steps to add proactive monitoring, intrusion detection services, as well as twice-annual vulnerability assessments to test the cloud infrastructure and check that it can’t be intruded,” says Guilbert.
Wardé says that managers are free to manage the security issue themselves by having HedgeGuard build the platform in-house as a private cloud; something that Linedata also supports with its Global Hedge platform. Sally Crane, Linedata’s Managing Director for Asia, comments: “Managers using the cloud just want reassurances that the data is properly encrypted and secure and that all the checks and balances are in place. Some still prefer to have the server within their office and we support that; managers have the option of being hosted or deployed.”
When the inevitable security question comes up with new clients, Wardé responds with the following question of his own: “Think about your data. It is hosted with your custodian, your prime broker(s), your administrator. How secure is it there? People tend not to respond to this.”
The point is, hedge fund data is not only hosted on the cloud, it’s hosted by every counterparty a fund does business with. “Our engineers are Microsoft-approved and clients are free to test the security of our cloud with third party interrogation tests if they wish,” confirms Wardé.
To protect its cloud, ECI uses a Canada-based firm called eSentire Inc. The firm does traffic inspection to look for different patterns in data files that a hacker might try to download.
“If they detect a pattern they have the ability to deny that IP address from communicating with the server. They have a solution called AMP – Asset Manager Protect. If they see one attack occurring for one of their clients they apply that same protection policy to all other clients,” says Guilbert.
Clearly then, cloud security is as watertight as it can possibly be. There have yet to be any major cyber attacks and hedge fund managers can take comfort from this.
As technology enhancements continue to be made and more applications get added to cloud platforms the ability for hedge fund professionals to work anywhere at any time not only gives them an edge, it demonstrates to prospective investors that they are in total control of their business.