Yesterday, we hosted a webinar called “A Checklist for Starting a Hedge Fund in 2015,” which focused on structure and strategy considerations for hedge fund startups as well as focus areas for your technology infrastructure and cybersecurity systems. Marni Pankin, partner at Marcum LLP, and Vinod Paul, managing director at Eze Castle Integration, shared their expert knowledge on what they consider to be the top priorities for hedge fund startups in 2015.
Pankin started with a checklist of her own, including what an emerging manager should look for when launching a new firm. We'll cover Eze Castle's portion of the webinar in Part Two next Tuesday, May 26th.
Categorized under: Launching A Hedge Fund Cloud Computing Disaster Recovery Security Hedge Fund Due Diligence Hedge Fund Operations Hedge Fund Regulation Infrastructure Communications Outsourcing Business Continuity Planning Trends We're Seeing
This article first appeared on FINalternatives and was contributed by Brian Macallister, managing director at Ledgex Systems.
Today’s hedge fund investors are more competitive – and more demanding –than ever. As a result, many hedge funds are walking a fine line. They need to track communications, client relationships and capital movements in order to raise and retain assets, while providing exceptional client service and exceeding reporting requirements – all without increasing headcount or operational overhead. That balancing act is essential to avoiding these three primary reasons investors walk away from their hedge funds:
1. They aren’t happy with performance.
No amount of communication or reporting will save an underperforming hedge fund from losing investors. However, those efforts will help fund managers get ahead of investor concerns and proactively address likely questions during periodic performance dips. Information is power, especially in the hands of the firm. When information about how the investor’s balance today relates to past performance is readily available and integrated with customer relationship management data, financial firms can better manage expectations and investor reactions.
As your hedge fund’s IT Manager or Chief Technology Officer, you may be tasked with evaluating and directing the strategic technology initiatives at your firm. Unfortunately, this doesn’t always mean that you have the final say on how and when your firm makes technology-related decisions. That responsibility, in many cases, falls to the Chief Operating Officer or Chief Financial Officer, and in many cases, that individual does not have a technology background. It’s up to you, then, to ensure you provide your CXOs with the right information to make an informed decision about your firm’s technology foundation.
We asked our own CFO, Chris Holden, to talk through some of the primary considerations C-level execs will weigh when evaluating a move to the cloud. Read a recap of his thoughts here or scroll down to listen to the full replay of our conversation.
Cloud Drivers: Is Cost Always the Primary Factor?
According to Holden, the best way to justify a new technology to someone non-technical is to provide a sound and logical cost comparison. And when it comes to the cloud, yes – cost is a big factor and a serious selling point.
We love showcasing our work with clients and one such client is Astellon Capital Partners who selected the award-winning Eze Private Cloud for all of its IT needs. Astellon moved to the Eze Private Cloud because of Eze Castle Integration's leadership role in bringing cloud services to the investment community, as well as its ability to deliver the high performance, applications and exceptional user experience the investment firm demands.
Established in 2011, Astellon Capital Partners is a twelve user alternative investment manager based in London focusing on European event-driven value-investing with a particular focus on German-speaking countries.
Davi Vieira, head of operations at Astellon Capital Partners, said, "Our move to the Eze Private Cloud was born out of the need to have a secure, reliable and institutional-grade IT platform that matches our focus on implementing strong financial, operational and infrastructure controls. Eze Castle Integration is the driving force behind the adoption of cloud services in the hedge fund industry and the optimal partner to help us run our business for many years to come."
It’s a question that many folks in the financial services industry have been asking for a few years now. Are potential investors comfortable with the idea of hedge funds leveraging cloud services? In Part 1 of our cloud webinar series, The Investor Perspective on Cloud and Security, we asked Ashley Gimbel, Senior Vice President at Dyal Capital Partners, to share her thoughts on evaluating the operational and infrastructure decisions of hedge funds and alternative investment firms and if investors are truly comfortable with the cloud. Click here or scroll down to watch the full replay of our conversation with Gimbel.
The simple answer is ‘yes.’ According to Gimbel, investors are and should be at ease with hedge fund clients using cloud infrastructures to support their daily operations. In fact, she says, hosted infrastructures often make more sense for firms with little to no IT resources in-house.
With a few caveats, of course. Firms should ensure outsourced cloud providers have proper Service Level Agreements (SLA) in place and are conducting appropriate oversight of their provider(s). A few other technology must-haves:
Well integrated data and systems
Established policies and procedures
Comprehensive disaster recovery
At Eze Castle Integration we see thousands of due diligence questions about hedge fund technology and operations each year. The questions around security are getting more specific with investors wanting details about each layer of a firm’s security stack.
A new question we’ve seen pop up one or twice centers around whether a firm’s online systems have undergone an ethical hack. So what is ethical hacking and how is it different from penetration testing?
What is Ethical Hacking?
Going back to our trusty security dictionary, SearchSecurity defines ethical hacker (aka white hat hacker) as a “computer and networking expert who systematically attempts to penetrate a computer system or network on behalf of its owners for the purpose of finding security vulnerabilities that a malicious hacker [aka black hat hacker] could potentially exploit.”
The increased focus on all things cybersecurity related – cyber-attacks, cyber warfare and cyber terror – has even led to the creation of a Certified Ethical Hacker (CEH) designation, which hacking pros can earn by completing online courses offered by the EC-Council.
In its 2015 priorities, the SEC’s Office of Compliance Inspections and Examinations (OCIE) listed cybersecurity as a key focus area in its risk-based assessments. Then on February 3, 2015, OCIE released summary findings from its Cybersecurity Examination Sweep.
OCIE’s sweep focused on written documentation for their assessment and conducted "limited testing" of the accuracy of the responses. They did not review the technical sufficiency of the firms’ programs either. OCIE’s reliance on documentation highlights the importance of complete Written Information Security Policies.
Following are noteworthy items Eze Castle Integration observed in reviewing the findings.
Most firms adopted written information security policies, but 43% of advisers did not conduct periodic audits to determine compliance with these information security policies and procedures.
49% of advisers did not discuss mitigating the effects of a cybersecurity incident and/or outline the plan to recover from such an incident in their written business continuity plans.
The vast majority of examined firms conduct periodic risk assessments, on a firm-wide basis, to identify cybersecurity threats, vulnerabilities, and potential business consequences. However, only 32% of advisers require cybersecurity risk assessments of vendors with access to their firms’ networks.
In the Written Information Security Plans (WISP) Eze Castle Integration creates for clients, we include service provider risk assessments as a standard element.
HFMWeek Catches Up with Eze Castle Integration’s Managing Director, Vinod Paul, To Discuss How Technology Can Help Tackle the Challenges Facing Hedge Fund Start-up Firms.
HFMWeek (HFM): Are you seeing a healthy market for new hedge fund launches in the US?
Vinod Paul (VP): 2013 and 2014 were very strong years for start-ups in the US. Our US pipeline is also quite healthy for 2015 in terms of start-ups, which is a little different to Europe, where there aren’t as many launches. In terms of overall US business, 50% of the clients we brought on in 2014 were start-ups; this is up from 40% in 2013. There are several factors that have contributed to this, some that we cannot control, such as how the wider market performs. Institutional money coming back into the market is causing some of the start-up activity. Many of the start-ups we have been able to bring on were funded by larger institutions. HFM: How are today’s start-up funds different than those from five years ago?
This article originally appeared on TABBforum and was contributed by Steve Schoener, senior vice president of client technology at Eze Castle Integration.
Cybersecurity certainly made its mark on the hedge fund and alternative investment industry in 2014. Threats consistently increased in frequency, sophistication and form. With the release of the SEC’s Cybersecurity Risk Alert this past April, firms were forced to react swiftly and leave their outdated security practices behind. 2014 was a reactive year for hedge funds, but we envision a shift in trends for 2015.
Prior to heightened regulations and detailed due diligence and IT security questionnaires, the majority of financial firms were drawing their curtains closed when it came to facing the reality of the threat landscape. But it was only a matter of time until businesses no longer could turn a blind eye to threats and investors knocking at their front doors.
Over the past year we have witnessed an unceasing number of cyber-attacks and potential threats, as well as heightened security regulations placed upon hedge funds. Consequently, we’ve all read the headlines and best practices guidelines when it comes to cybersecurity. While these resources are all helpful, there is an untapped core that lies beneath this hot topic’s surface layer. That is, the ever-evolving future and forthcoming trends for hedge fund information security. So what do we at Eze Castle Integration forecast for cybersecurity in 2015?
It’s officially 2015! With the New Year upon us it is important to set new goals for the future. In today’s post, we offer five resolutions hedge funds should consider to help pave the pathway for another prosperous year.
Resolution #1: Prepare for Cybersecurity
In 2014, hedge funds were revamping their IT policies and upgrading their methods of preventing, detecting and responding to cyber threats. However, this push to overhaul and enhance security was largely reactive to the several breaches we witnessed in 2014. Among those companies affected were Sony, Target, JP Morgan Chase and Home Depot. In 2015, we predict cybersecurity will remain at the forefront of headlines. That being said, hedge funds should prepare ahead of time and have detailed information security policies in place.
Resolution #2: Avoiding Common Cloud Mistakes
When it comes to hedge fund operations and technology, there is no margin for error. Common mistakes range from not sizing bandwidth adequately to business needs to not planning proactively for applications and assuming deep security safeguards are in place. Hedge funds that take the proper precautions and do their research when cloud shopping save themselves from preventable stress and inflated issues down the road.