Hedge IT Blog

The countdown is on as the March 30, 2012 deadline for hedge fund and private equity managers to file their registration forms with the SEC, under the Dodd-Frank Act, is just around the corner. In reality though, most firms filed their Form ADV back in February to satisfy the 45-day review period.

However, the Dodd-Frank Act continues to spark change and much debate throughout the financial services industry. Just today the U.S. Commodity Futures Trading Commission (CFTC) “completed Dodd-Frank Act rules requiring swaps brokers to decide within minutes whether to clear a trade in an effort to reduce risk in the $708 trillion global swaps market,” according to Bloomberg news.

Dodd-Frank also requires that swap entities establish and maintain written business continuity and disaster recovery plans designed to enable them to resume operations with minimal disturbance to counterparties and to recover all required documentation and data.

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As 2011 comes to a close this week, we thought we’d share some of our favorite (and most popular!) blog posts from the Hedge IT stream. As expected, topics such as cloud computing, Dodd-Frank and technology outsourcing were popular among our readers.

We expect these trends to continue to permeate the blog through 2012, and we’ll continue to expand our reach by bringing you relevant and interesting content to read (and watch) come next year. If you have suggestions or feedback on the Hedge IT blog, please feel free to contact us.

Alas, here are our most popular hedge fund technology blog posts from 2011:

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As part of our Exploring Cloud Services for Hedge Funds seminar recap, we have explored IT outsourcing and outsourcing middle and back office operations. In today’s final segment, we will look at compliance and regulatory requirements.

What are the main technology trends within buy-side?

There are many drivers affecting investment decisions today on technology, but the two main drivers are:

• Regulatory change exemplified by the Dodd-Frank Act, money market fund rules, cost basis accounting, and the European Alternative Investment Fund Managers Directive (AIFM)
   
• Buy-side firms in general are being affected by the rapid changes in the trade execution business where latency reduction, connectivity to new/more execution venues, and high frequency trading are increasingly popular topics.

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The FSA is removing the exemption for recording of mobile phones. This article explores mobile recording technology hedge funds can use to be compliant.

Following our earlier post on UK Hedge Fund Regulations, today’s blog explores mobile recording technology so you can confidently choose the best technology solution and achieve compliance with the new Financial Services Authority (FSA) requirements.  

Let’s start by recapping on the new FSA requirements for mobile recording:

• In 2010 the FSA decided to remove the current exemption for the recording of mobile phones from its Code of Business Sourcebook (COBS 11.8 taping rules).
• Compliance deadline: 14th November 2011
• Record  all ‘relevant’ telephone conversations and all electronic communications on firm-issued mobile devices and store these recordings for 6 months in a format that cannot be alternated and the FSA can have easy access
• Take ‘reasonable steps’ to prevent ‘relevant’ conversations on unrecorded private mobile devices

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This year, we’ve seen disasters of all kinds: snowstorms and blizzards, tornadoes and earthquakes, hurricanes and heat waves. They have their own motives and destruction paths, but each can be equally disruptive to investment firms and their daily operations. Disaster recovery solutions and business continuity plans are important tools to help firms prepare for these types of disaster situations, but without the proper education, their effectiveness is suspect.

To talk through some of these issues, we recently held a webinar featuring experts from Ridgefield Capital, Morgan Stanley and Eze Castle. Take a look at our recap below. To listen to the full event recording, click here.

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As part of our April 2011 Hedge Fund Benchmark Study, we asked hedge fund managers about the use of an email and instant message (IM) archiving system. Of the funds we surveyed, 61 percent of respondents who were using an archival solution said they were using Global Relay. Other popular vendors named in the survey included Symantec and Iron Mountain.

This was an important question on our survey, particularly in light of changing requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank now requires registered investment advisers to retain email records for between five and seven years. In addition to regulatory requirements, investors are also looking for firms to have email and IM archiving in place as part of a complete technology infrastructure.

A comprehensive archiving solution will assist investment firms in responding to any audits or litigation discovery requests in a timely manner. An ideal solution, for example, should be able to effectively handle electronic discovery requests under the Federal Rules of Civil Procedure (FRCP) by ensuring quick access to relevant data and avoiding disclosure of irrelevant, sensitive or proprietary information.

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As we’ve talked about before, cloud computing is one of the hottest trends in the hedge fund industry right now. We recently hosted a webinar, Moving to the Cloud: Critical Considerations for Fund Managers, to talk through what’s driving this trend as well as some of the key factors hedge funds and investment firms should take into account when evaluating their technology infrastructure. The information below was presented by our expert panelists.

To listen to a replay of the event, click here.

What’s driving the move to the cloud?

There is little doubt that the movement to the cloud within the hedge fund industry is significant. For startup firms, especially, cloud adoption is becoming nearly universal. In addition to cloud adoption, the general trend toward outsourcing continues to grow, as investment firms realize that multiple aspects of their business can be outsourced (human resources, accounting, etc.).

There are a number of factors responsible for driving the cloud computing trend, including investor acceptance, the increased need for disaster recovery, staffing considerations, and, of course, cost.

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In this first installment of our Hedge Fund Technology Roundtable Series, we’ve asked technology and service professionals throughout our company to answer one question:

What is the most significant technology trend you’ve seen in the hedge fund industry in 2011?

Find out what our experts had to say! And stay tuned because next month we’ll be back with another hot topic as part of our Roundtable Series.

“Cloud computing is the biggest trend in the industry right now. Nearly 90 percent of firms we have engaged with year-to-date are interested in the cloud on some level. With cloud services, firms have increased flexibility and scalability and often lower costs, so it’s no surprise that it’s become such a growing trend.”

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We recently hosted a panel at the Hilton New York to talk about some of the key challenges facing hedge funds today, as well as current trends in hedge fund technology.

Panelists included: Vinod Paul, Managing Director at Eze Castle Integration, Anurag Bhardwaj, Head of Strategic Consulting at Barclays Capital, and Vishnu Varma, Chief Technology Officer at Tiger Global Management.

Below is a summary of some of the key topics discussed at our recent seminar:

Hedge Fund Market Trends & Challenges

It’s been an interesting year thus far for hedge funds and other alternative investment firms, as inflows have been high but performance low. In addition to performance challenges, hedge funds continue to deal with increased competition for investments, and thus asset-raising remains a hurdle for many funds – regardless of their size or strategy.

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Earlier this week, we looked at the Financial Services Authority’s (FSA) requirements for mobile voice recording, which comes into effect November 14. In today’s blog post, we look further into the PS10/17 requirements as well as the hot topics discussed at our recent hedge fund technology seminar in London, focusing on due diligence, mobile voice recording and disaster recovery. Let’s have a look at the hot topics discussed by our panel of experts at our recent seminar:

Will investors give less focus to infrastructure in the future? Will the due diligence load lighten?

There is no sign that due diligence will lighten. In fact, more focus, especially with more institutional money hitting the FOFs, to ensure all risks are in the strategy and not the infrastructure. Remember most conduit investors’ “alpha” is in the quality of their due diligence process so expect to see further tightening. Growth has been exponential with little feedback to managers so it is extremely important to get strong service providers who can let you know the latest requirements.

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