Stricter regulations and calls from investors for greater transparency are leading hedge fund managers to up their game and enhance their technology infrastructures to become more operationally efficient.
The growing regulatory environment -- Dodd-Frank and the Alternative Investment Fund Managers Directive Level 2 (AIFMD) -- is pushing more and more hedge funds to consider adopting cloud computing as the operational burdens around reporting and transparency continue to grow. To refresh, in April 2009, the European Commission proposed a Directive on Alternative Investment Fund Managers (AIFMs) with the objective of creating a comprehensive and effective regulatory and supervisory framework for AIFMs at the European level. The proposed Directive was aimed at providing harmonised regulatory standards for all AIFMs within scope. ESMA was requested by the Commission to provide technical advice on the implementing measures of the AIFMD (Level 2).
Regulators and investors have played a significant role in the way the alternative investment industry behaves, in return influencing the evolution of technology. Regulatory change and due diligence are the largest drivers of change in the hedge fund space. Even if the changes proposed in your organisation are not regulatory driven in nature, hedge funds need to ensure that internal operations or outsourcing projects are organised is such a way that their output will easily satisfy both existing and future legislative requirements.
At the same time, due diligence has increased massively in importance for most investors and hedge funds. Investors do not want to be told about processes - they want to see them. They expect robust and transparent operational controls, and the process for ensuring these are in place is an important driver of many upscale projects across the industry. All of these crucial regulatory changes, as well as the demand from institutional investors for greater flexibility and enhanced reporting, have added to the pressure on hedge fund managers and their service providers to meet this challenge.
Outsourcing Non-Core Functions Delivers Relief
The appeal of cloud computing is proving irresistible for hedge funds. With costs as well as regulatory and investor pressure mounting in a world where technological change is relentless, outsourcing non-core operational factors such as IT has become even more attractive. Having others worry about these matters also means managers can focus on their day-to-day task of running a successful organisation.
One perceived hurdle to adopting cloud computing often stated by hedge funds is security. The following three-minute video features comments from Bob Guilbert (managing director here at Eze Castle Integration) on the six security must-haves for every cloud provider in order to safeguard a client's data and applications.
As the hedge fund industry continues to change, firms will need to maintain an open dialogue with their technology providers in order to meet both the challenges and opportunities that arise over time as well as stay current on technology advancements, such as cloud computing.
Don’t forget to check out our 2012 Hedge Fund Operations and Technology Benchmark Study in which we surveyed 320 financial services firms in the UK and US to glean information on the front, middle and back office systems they use to support their businesses.
Categorized under: Cloud Computing