As a hedge fund or investment management firm, you’re juggling a lot. Hedging bets, pitching investors, running day-to-day operations – there’s a lot on your plate. That’s why working with an experienced cloud services provider can offer benefits beyond just infrastructure.
Let’s take a look at three different ways your cloud services provider can de-stress your busy life and provide you with much needed value.
1. Free up your space.
One of the beauties of a cloud computing environment is the near elimination of physical hardware and equipment on-site at your office. When managing your own server room or Communications (Comm.) room, you are responsible for housing a variety of equipment such as servers, UPS units, networking equipment and cables, spare parts, etc. Not to mention you need the real estate for it all. And don’t forget – much of this equipment runs on a three-year refresh cycle, which means you’ll have to upgrade everything in the near future.
Last month, the SEC issued a guidance update for registered advisers regarding how funds (and their service providers) plan for potential business disruptions. Eze Castle Integration’s Certified BCP Planners have reviewed the guidance and recently shared their thoughts on how hedge funds and private equity firms can meet the SEC’s growing expectations and standards with regard to business continuity practices.
Read on for five takeaways from the SEC’s business continuity guidance update or scroll down to watch our full, 30-minute webinar replay.
Include all All Key Components of Your Firm
When writing a BCP, firms undoubtedly remember to create plans for their physical office facilities and technology systems, but it is important that you don’t overlook other important components that drive the well-being of your firm. This includes data/colocation centers, employees, activities and dependencies on critical third parties. You could face an array of issues affecting one or more factors within your firm, so it is important to implement a business continuity plan that not only addresses potential risks but also outlines comprehensive protection methods.
A BCP is a Living Document
Internal participation is a fundamental driver for a successful BCP. From senior management executives to representatives from Human Resources and Compliance, internal business continuity contributors need to be informed of and up-to-date on policies and procedures. The BCP should also take into consideration the ideas, recommendations and changes brought forward from other departments within the firm.
Remember: A business continuity plan is dynamic, therefore changes and challenges faced need to be transparent with all parts of the company.
Today’s private equity funds are increasingly being compared to their hedge fund counterparts and, as a result, are also facing more scrutiny. When it comes to managing and mitigating risk, PE fund managers are wrestling with growing threats on the security front and beyond and mounting pressures from the likes of the SEC and other industry best practice standards.
Security and Business Threats for Private Equity
Security threats abound for financial services firms, and private equity firms are not immune. From the inside out, the risks to PE firms grow daily, with savvy and experienced hackers looking to target financial firms – and perhaps more concerning – untrained and unaware employees blindly putting their firm’s operational standing in danger.
Beyond cybersecurity, however, there are also business threats to consider. Non-security incidents – everything from minor, incidental business disruptions to large-scale, regional impact events – can also wreak havoc for private equity firms otherwise unprepared to resume business functions. Downtime may prove to be less concerning for a PE manager than his hedge fund counterpart, but that does little to calm uneasy clients and investors who expect operations to run smoothly at all times.
PE Firms Feeling the Regulatory Pressure
The above security and business threats pose a serious challenge for private equity firms today. But beyond managing those risks to satisfy a fund manager’s own inherent desire to protect his/her firm, private equity firms also face significant and growing pressure from external bodies to meet operational excellence standards that continue to develop and evolve.
The following article was written by Dean Hill, Executive Director, Eze Castle Integration and first appeared on Hedgeweek as part of their special report: A Guide to Setting up an Alternative Investment Fund in Europe.
There is no shortage of threats to financial services firms, and the list of requirements from investors and regulators alike is growing at a rapid pace. As a startup, it's important to demonstrate to investors that you take your business seriously, hence, investments in operational excellence are required. On the cybersecurity front, that means leveraging technology infrastructure with robust, security-rich features including intrusion detection and ongoing traffic monitoring, regular vulnerability assessments and next-generation software, firewalls and patches to keep hackers out and firm assets secure.
But beyond technology safeguards, today's successful financial firms require the wherewithal to implement comprehensive cybersecurity programmes – whether you're a seasoned firm or embarking on your first investment venture. The most effective cyber programmes will focus on four critical administrative areas: (1) developing comprehensive security policies and plans to prevent external cyber-attacks or internal breaches, (2) training firm employees on said policies and current cyber threats, (3) cultivating a culture of security awareness from Management down, and (4) managing an effective risk programme via external vendor oversight.
Plan: True cybersecurity defence starts with proper planning. To start, funds need to develop written information security plans – comprehensive documentation of the firm's corporate security initiatives. This should include technical and administrative safeguards being employed to secure confidential data. In the development stage, firms will need to identify systems and plans currently being used, technical procedures and systems in effect, employee access controls relative to confidential data as well as user responsibilities for both prior to and in the event of a data breach.
When assessing technology options and evaluating outsourced IT providers, there are a number of questions hedge fund managers should be asking in order to make the best decision for their firms.
As we talk with investment managers – especially those whose firms are considering a move to the cloud – we’re hearing many of these great questions on an increasingly regular basis. One particular area where there tends to be some confusion, however, is the topic of audit standards which govern service organizations and the data centers they manage on behalf of client firms. To help you navigate through the evaluation process, we’ve pulled together a guide to understanding audit terminology and industry standards.
There is a lot of change happening across the investment management industry, as hedge funds and alternative firms deal with uncertain markets, regulatory pressure and a fiercely competitive landscape. As a result, hedge funds are becoming smarter and thriftier. Budgets are tightening, and with increased demands from investors and regulators, funds now face greater challenges than ever before.
A key challenge in today’s landscape is weighing cost versus benefit when it comes to maintaining internal hedge fund operations and technology. Back in the aftermath of the 2008 economic crisis, operational cuts were made across personnel, infrastructure and everywhere in between. Funds rebounded in recent years, but with global challenges (e.g. Brexit) looming and a tough economic market for investments, fund managers are once again looking to maximize efficiency and operations across the organization.
How does a firm go about maintaining their existing levels of performance and efficiency while also trimming costs and anticipating changes that cannot yet be defined? Determining what a fund should be evaluating is half the battle; developing an actionable game plan and executing it is the hard part.
Hedge Fund Staffing
People are the foundation of a company no matter what the size. Ironically, managing the day-to-day operations are not tasks that investment professionals typically have experience with or have much interest in. In order to create a performance-driven hedge fund operating staff, fund managers should identify and define the roles and responsibilities of each staff member.
Setting individual and group goals and objectives, as well as a clear method for achieving these, is one of the most important things a fund can do in order to maintain an effective, scalable staff. If a hedge fund does not have a sound staffing and operating model, managers may find that certain operational tasks are not being fulfilled, which could lead to portfolio or compliance risk.
In an alert posted to its website, the U.S. Federal Bureau of Investigation (FBI) stated that phishing email scams requesting wire fraud transfers have cost firms more than $2.3 billion in losses since 2013.
At the root of a phishing email scam is in-depth reconnaissance during which the cybercriminal delves into employees's personal information and the organization’s processes. During this phase, schemers phish languages within email threads and obtain enough information to pinpoint money-managing employees within the firm. Equipped with this insider information, the criminal sends a spoofed email, assuming the identity of the firm’s CEO or other senior executive, to an employee responsible for managing funds and requests an illegitimate wire transfer. Typically, the message will relay a sense of urgency – a key factor in the fraud's success.
According to the FBI, these email scams have increased by 270 percent (%) since January 2015. With the rise of these incipient, sophisticated attacks, the need for fully managed phishing and training programs grows exponentially. Breaches will happen, but when employees are provided with the tools and knowledge needed to recognize fraudulent emails, risk decreases and a firm’s defense system becomes stronger and more agile.
The below information is an excerpt from Eze Castle Integration’s 2016 webinar: The Evolution of Investor IT Due Diligence.
Investors have long been asking questions about firm operations and even technology. But with the way IT has evolved over the last 5-10 years, it’s no wonder investor inquiries have changed in both size and scope. Of course, in addition to technology evolution, we’ve also seen influences on the regulatory side, as the SEC continues to examine and evaluate firms’ security practices, which ties heavily into technology.
In looking back, it’s not unfair to say that 10 years ago, technology was what we’d call a “check the box” category. An investor due diligence questionnaire may have been one or two pages and focus mostly on firm investment history, performance, etc. On the IT side, it may have said “are you using an outsourced IT provider” or even “do you have a disaster recovery system” but beyond that, there was very little inquiry into the types of technologies being used at hedge funds as well as the protections in place to mitigate risk.
Of course, times have changed and now we see investor DDQ documents upwards of 5-10-20 pages in length and asking great levels of detail about technology, cybersecurity and operations. So let’s talk a little bit more about the influences for this due diligence evolution.
Categorized under: Hedge Fund Due Diligence Cloud Computing Security Disaster Recovery Hedge Fund Operations Hedge Fund Regulation Infrastructure Communications Outsourcing Business Continuity Planning Trends We're Seeing
It’s no secret that investment manangement firms (including hedge funds and private equity firms) have historically been divided over the use of public and private clouds. We’ve discussed it in depth here on the Hedge IT Blog, explaining the differences between the two and why most funds are choosing to go with a private cloud solution.
A case can be made, however, that there’s a time and a place for each cloud platform and both offer their own advantages for financial services firms. We’ve taken a look at some of the key areas firms will consider when looking at public and private clouds and identified which we think comes out on top.
Service & Support
Investment firms demand uptime to ensure operational efficiency and profitability. Public cloud providers, however, do not offer investment-specific IT support and rather have limited customer service representatives troubleshooting the most basic of email and desktop support issues.
This article was written by Bob Guilbert, Managing Director, and first appeared in Hedgeweek's 2016 Guide to Setting Up an Alternative Investment Fund in the USA.
You're a new fund manager, and somewhere on your task list the letters "IT" are probably followed by a question mark. Odds are, you don't have a technology background, so as your firm's Chief Operating/Financial/Compliance Officer (or in some cases, Portfolio Manager), the sudden responsibility you've undertaken as your firm's de facto IT Manager is intimidating at best.
The good news is, as a startup, your IT options are pretty clear. In 2016, there's no better technology decision a new firm can make than selecting a cloud platform – an infrastructure that has proven benefits including scalability, flexibility and robust security, among others. And while the thought of hosting IT offsite was once a worry for allocators, today's investors find comfort in knowing hedge fund and alternative investment firms are focusing on their investment priorities and leaving the technology decisions to the experts.
From our perspective, the cloud is now a tried and tested infrastructure environment that is acceptable to the institutional investor community. They have become very thorough in their operational due diligence process, understanding exactly what cloud providers provide from an operational, management and security perspective. This has allowed managers to become much more comfortable at appointing a cloud provider to deliver an infrastructure that will perform well in any type of trading environment.
Where managers need to spend their time is deciding on the best cloud provider to work with, as opposed to thinking about whether or not they should use a cloud provider in the first place.
And how exactly do emerging fund managers embark on that decision-making process?