Here at Eze Castle we spend a lot of time helping new funds launch or expand their operations around the world. We’ve done this for a long time so we have a set of best practices that we follow and introduce with our clients. We’ve decided to create an eBook outlining all the best practices for launching a hedge fund with regards to your technology and operational needs. But first, we’re going to blog about it in four parts starting with today so you can get a sense of how we can help you. We welcome your comments and please contact us with any questions.
What you need to know about IT before launching your hedge fund (Part one of a four-part series)
The benefits to launching a hedge fund are innumerable; you make the decisions that lead to success and you directly reap the personal and financial rewards of your hard work. As you set out to launch your own fund, however, you might feel that choosing the right supporting tools – specifically technology solutions – is a daunting task.
Technology plays a vital part in the financial services industry today. If you come from an established investment management firm, you likely had an IT department to make decisions about your technology needs. On your own, you don’t have that resource. However you also don't have the constraint of having to win approval for technology choices you know will improve your business and benefit your clients. By launching your own hedge fund, you gain control over every choice regarding technology outsourcing, purchases, maintenance and upgrades.
You have a lot of decisions to make.
In this blog and in upcoming posts, we’ll guide you through the technology opportunities and pitfalls you face as you start your fund. We’ll cover the core IT building blocks every fund must have – including infrastructure, voice services, data protection and archiving – and detail the most common mistakes new firms make when it comes to selecting technology.
One of your most important tasks as a hedge fund operator is to protect the sensitive information that passes through your hands each day. You should insist upon a multi-tiered approach to security, and if you’re outsourcing your IT concerns, make sure the company managing your services is securing its data center and hosting environment.
Ask the company to confirm that it is:
- Maintaining physical security, including cages and round-the-clock monitoring;
- Using technical security, such as cameras and digital monitoring;
- Ensuring sufficient redundancy in its data center;
- Maintaining an N+1 infrastructure with multi-entry fiber paths and power grids and multiple network providers; and
- Monitoring applications to ensure that nothing goes wrong with the security in place.
Your second task relates to the various telecommunications needs you will face as a hedge fund operator. Before you launch, you must consider your Internet service, phone and voicemail, as well as your market data services.
The Internet, of course, is an essential vehicle for collecting and distributing market data, as well as communicating with your clients and partners via e-mail. You’ll likely find three Internet access choices, depending on availability in your area. There are benefits and drawbacks to each, as described below.
Internet Access Option
High speed, relatively inexpensive
High speed, relatively inexpensive
High reliability, efficient speeds
More expensive than other two options
Whichever Internet access method you select, seek out a plan that bundles proactive monitoring and security features to ensure the highest possible availability. You should also consider using two providers and a router in order to establish a safety net in case one of your sources fails.
Most firms purchase a switch, known as a PBX, for phone and voicemail services. Your PBX will be installed in your data center, and provides several options for routing calls and storing voicemails, as well as services such as caller ID, auto-attendant and integration with ring-down lines to various brokers. As you consider your options, it will be useful to know the approximate number of users and required functionality of the system. Keep in mind your requirements for redundancy, voicemail-to-e-mail setup, branch offices, call accounting system and call recording system.
Voice over Internet Protocol (VoIP) systems are another option some firms employ. VoIP services are relatively inexpensive and can therefore be attractive to businesses initially short on capital. However, poor call quality is not uncommon, so do some due diligence before selecting this option and make sure your VoIP provider has defined quality of service levels.
Many IT service providers have partnerships with telecommunications companies and can assist you in selecting the appropriate options for your business. Note that your costs will depend not only on the functions you need, but also how many users your fund will have.
A fund with fewer than 40 users might pay anywhere from $20,000 to $40,000 for basic telecommunications services. However, it’s likely you will want additional services including advanced mobility, integration with trading systems and modular messaging. When you factor in these features, your cost will rise to a range between $30,000 and $80,000.
Finally, you’ll need to select a market data vendor. Again, your selection criteria include cost, speed, reliability and service. Fees vary and are determined by your offering mix, user base, remote access method and real-time pricing requirements. The leading providers of market data include Thomson Reuters, Bloomberg and Dow Jones.
You’re halfway through the technology elements you must consider before launching a hedge fund. Now read our next article, Hedge Fund Launch Tips II: Data Protection, Colocation, Archiving. Of course, you can always contact our team to discuss you hedge fund launch.
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