Once a hedge fund manager understands the local regulations, he must look to leverage his partners and key vendors to help facilitate international expansion. A hedge fund prime broker is a key ally when establishing international operations.

There are several significant factors that should be taken into consideration when selecting a hedge fund prime broker. A hedge fund wants a prime broker who will help it grow, and the easiest way to do that is to make sure both the hedge fund and the prime broker understand local regulations. A hedge fund places a lot of trust into a prime broker; therefore, it should verify that the broker understands the international investor marketplace. The prime broker should be adjunct to the firm’s own marketing efforts. It is important for a prime to know what a good match for a firm is.

From a custodial perspective, a hedge fund should ask several questions.

• Does this prime broker cover every market?
  
• Does it use sub-custodians? If so, who are they, and how much more do they cost?
  
• What is the risk is using sub-custodians?

Every hedge fund should know who has the right to its assets and if there are any fees involved in the process.

In addition to custody factors, settlement, multicurrency capabilities and trade execution are also important considerations. A hedge fund should make sure a prime broker can settle in a local currency, and can also custody and report in multiple currencies. A firm will want to meet market requirements and reconcile cash, so it must first understand what its buying power is. As far as trade execution is concerned, check with the prime broker to find out if there are electronic trading capabilities and a trading desk with around-the-clock coverage.

Other factors to be aware of when selecting a prime broker are short-sale coverage, business consulting, and capital introductions. Make sure there is a stock loan desk for non U.S.-hour borrowing. Ensure that you are getting color in markets; when it comes to certain securities, there is little collateral. Certain markets won’t let firms short directly, so be aware of what your options are.

Now you know what to expect out of your prime broker. So what will your prime broker expect from you? One of the most important expectations a prime broker will have for a hedge fund will be in relation to financing. As the market evolves, different restrictions are emerging. Many prime brokers are revisiting their margin and financing agreements as liquidity issues become more prevalent. Prime brokers are giving increased liquidity which requires higher rates, additional collateral requirements, extra fees associated with margin balances held in other currencies and short rebates adjusted for international securities.

For more information:

• Download our full article, Expanding Your Hedge Fund Internationally: Operations and Trading Considerations
  
  
• Read our previous blog post about the Technology and Business Factors
  
• Learn more about how Eze Castle can help you expand your hedge fund operations. We have office locations across the U.S. as well as London, Geneva and Singapore.
  

Photo credits: Horia Varlan

The “beauty” of hurricanes and other weather-related situations from a BCP perspective is that businesses have time to prepare and put the necessary precautions in place. A firm that is ill-prepared for a hurricane is going to have real problems when an unannounced incident, such as a building fire, occurs.

In a previous post, we discussed how to respond to a pandemic emergency as well as the business continuity plan considerations. Many of these practices hold true for weather-related incidents because, in both situations, you have time to prepare before the disaster strikes.

Since there are unique considerations associated with a hurricane disaster, I sat down with one of Eze Castle’s Certified Business Continuity Planners, Lisa Smith, to discuss what firms should think about before the hurricane arrives to help ensure they can continue operations. Following are some key business continuity preparation questions to consider:

• A business continuity plan typically identifies a few key individuals who will activate at the plan. Will these individuals be available to execute the necessary steps? Often the BCP owners are also members of the management team who travel frequently. Now is the time to ensure they will be available to execute their BCP responsibilities.
  
• What will be the criteria for allowing employees to work from home? Who will have the power to make that decision? You may want to consider allowing employees to work from home a few days prior to make sure they can assess the systems. Testing before the bad weather arrives is critical.
  
• Do you have enough Citrix or VPN licenses to accommodate the number of employees working from home?
  
• How will you communicate business continuity plans to employees during off hours? Will you use a call tree or an automated notification system?
  
• If your office loses power or employees lose power at their homes, is there a central meeting location from which they can work? Hotels typically have generators and Internet/wireless access so they are ideal alternative employee meeting spots. Budget permitting, book a meeting room from which employees can work. Be sure to have a list of target hotels so you’re not scrambling to find a location at the last minute.
  
• What type of employee assistance will you offer should a catastrophic event occur? How will employees access this assistance (i.e. call HR or go to third-party)?
  
• Which employees are traveling and may be stranded in remote locations due to airport or other transportation related closings? What type of assistance will be provided to them?

Finally, remember that clear communication is critical to ensure all your preparation pays off.

For more information, download:

• Massachusetts Emergency Management Agency’s (MEMA) guide on how to prepare for inclement weather.
  
• Establishing Business Continuity and Disaster Recovery Plans—A Hedge Fund Manager's Guide
  
• Eze Business Continuity Planning Overview

Why Hedge Funds Are Using Colocation Services

There are a number of driving factors that motivate hedge funds to rely on colocation services for storage and support.

1. In-house facility limitations. As small or medium funds begin to grow, so does their supporting technology. If the technology grows at a rate faster than the hedge fund can accommodate, they often decide to host their equipment off-site. Communication Rooms (Comm. rooms) can be difficult as well as expensive to expand. Based on a firm’s size, a certain level of power is needed, and it can often be hard to generate on-site. Firms must also take into consideration their ability to control heat and humidity levels, which can seriously affect the performance of most hardware.
   
2. Redundancy. As with general size and space limitations, an on-site facility might not be able to accommodate the levels of redundancy that a firm requires to operate sufficiently. Also, disaster recovery and business continuity planning are being sought out more by businesses who understand that, realistically, they need to prepare for a potential outage. Colocation can be the solution, as equipment is stored away from the production environment at locations built, from the ground up, with multiple levels of redundancy, lessening the likelihood of failure. Depending on its tier (I, II, III or IV), a data center can provide varying levels of uptime.
   
3. Flexibility. If a firm that is launching or relocating attempts to store equipment in-house and the accommodations are not right, they will ultimately shorten the lifespan on the hardware, and end up costing themselves more money. There is never a cause for concern over space at a data center; you simply rent out the space you need, and if your equipment expands or increases, you rent more. You are paying for what you are getting without having to worry about spending thousands of dollars expanding your own comm. room.

The Colocation Pros

There are a number of advantages to hosting your firm’s hardware and/or software in an off-site colocation center. For instance, a data center offers immense flexibility, giving firms exactly the space they need at a lower cost than it would require to build out an on-site Comm. room. Colocation also offers a vast amount of necessary redundancy that firms can rarely generate on their own. Two of the most important considerations for choosing a data center are power and bandwidth; luckily, data centers are built precisely around these two factors and, therefore, are built around a hedge fund’s needs.

Security can also be a significant advantage when it comes to colocation. Data centers are secured and manned – most 24x7x365. Data centers often provide surveillance and monitoring – services that firms can potentially get on their own, but most likely at a higher cost. At a data center, security comes with the package. Additionally, construction and moving operations are never a concern. Building or expanding a Comm. room will most likely take weeks, whereas a data center can probably offer additional storage space in hours. And if a fund ever needs to move operations to a new production environment, there is no need to worry about transporting hardware.

The Colocation Cons

While there are specific advantages to colocation, there are also a number of disadvantages. For example, it is not always easy for a fund to find a data center near their operations. If they are not located in a major metropolitan area, it could be challenging to find a nearby data center. Even if proximity is not an issue, there can still be challenges. For example, if a server needs to be rebooted, it’s not quite as simple as a stroll down the hall. Someone will have to travel to wherever the hardware is stored. In the financial services industry, particularly, where time equals money, it is vital that location be factored into all considerations so as to optimize uptime.

Another disadvantage to colocation is the participation of third parties. When third parties are involved in any process, it is often disconcerting. If you are not the one handling and managing your equipment, there is always a chance that things will not turn out as well or as efficiently as you want. There are always the “what-ifs” to consider, and sometimes, there are too many to ignore.

Considerations for Colocation

Colocation is a growing trend in the hedge fund industry, particularly with its advantages in terms of increased redundancy and security. However, at least one important hurdle needs to be overcome before more firms can rely on colocation for their hosting needs. Machines and systems are made more power-hungry than ever before; computers and other vital business equipment are designed to require more of every resource. Data centers must be prepared to handle such increases.

If you choose to host your firm’s hardware in a data center, there are two important factors to consider: redundancy and application compatibility. First, you must understand the necessary bandwidth you will need to process information from your work and production environment to your data center. If you don’t have enough bandwidth, latency will quickly become an issue. The data center you choose must be able to install redundant connections.

Secondly, be sure that the functions of your current applications, as well as those of any future applications you may be interested in, are compatible with running it out of a colocation center. Remember that every 60 miles away you are from your data center equals 1 millisecond of response time for your applications!

Conclusion

Colocation services are a viable option for many hedge funds and investment firms; they provide increased power and redundancy, security and flexibility. Data centers are even trying to “go green” these days, providing even further opportunities for firms to get the needed amount of power by using fewer resources. However there are a number of considerations to be heard before making a move to host your technology elsewhere.

For more information on Eze Castle’s colocation services, please contact us.

Also, be sure to check out these related articles and subscribe to Hedge IT so you don’t miss future posts!

• A Refresher on Data Center Tiers
  
• Your Disaster Recovery Infrastructure Checklist

Promote full disclosure and openness
Know that the job of a leader is not to make the right decision, but to make sure the right decision is made. Part of succeeding in this is getting the right people in the room. Very often, the answer is waiting to be said, so learn to listen just as well as you talk. Set a standard of communication by encouraging open and candid discussions. Look at the facts in an honest way all the time (don’t sugarcoat problems). Promote full sharing of information, bring forth issues and deal with them (it’s ok; there is no such thing as a perfect project).

Decipher between good politics and bad politics by sharing information openly (unless there is something confidential to say, your stakeholders should be saying it at the project meeting table, not forming a line outside your office after the meeting). If you get caught choosing sides based on anything other than facts, you’ve already lost by way of practicing bad politics.

Restrain your self-brilliance, have humility, and acknowledge that you are there to serve
You have likely been chosen as the project leader for good reason. At the same time, be humble and acknowledge how fortunate you are for being in that project management position. There are probably millions of people out there who would do anything to be in your shoes, but circumstance has not given them the opportunity you have. Therefore, know that you have deep obligations to perform your duty as project leader with diligence at all times.

Don’t make the mistake of thinking success is a given (your past success is not a guarantee for the future, or even for the present). You’ll need to strive for it through the standards you set and live by today, right now. When living by these standards, know that you will be measured by what you leave behind.

Acknowledge that everyone on the project (including you) is there to serve. No matter what the incentive or compensation system is, do the right thing for the project anyway. When problems inevitably arise (no project is ever perfect), make sure the right people are there to help solve it. It is important to also remember that project success is team driven, not individually driven.

You are bound to get the most performance out of your stakeholders by giving them the authority to speak up as individual leaders amongst a group of leaders working together for the common benefit. You will learn more about your stakeholders this way, and are likely to uncover immense hidden potential.

The success of your group as a whole tells people a lot more about your leadership and project management skills than your individual success.

For more guidance, check out our Guide to Navigating Project Management Politics presentation.

Demetrios Gianniris is Director of Startups, Relocations and Projects (SRP) at Eze Castle Integration. He is responsible for overseeing the daily administration and operations of the Project Management team, including project design development, construction management, professional services and information technology consulting. Follow Demetrios on Twitter at www.twitter.com/dgianniris.

To most people, Project Management is generally defined as the art of accomplishing a goal through people. If we take the time to identify the mechanisms which make the accomplishment of project goals possible, politics is typically near the top of the list. Since politics are a fact of organization life all Project Managers are political beings by virtue of their position. That said, becoming politically savvy is easier said than done. Furthermore, it is not always viewed as a wholesome worthy goal to begin with.

Let us take a step back for a moment and understand what politics means. The word “politics” is derived from the Greek word “πολιτικός” ("politikos" or “civilian”), modeled on Aristotle’s book on government called Affairs of State. Although the term is generally applied to behavior within civil governments, it can also be applied in corporate, academic, and religious institutions.

In Book1 of Politics, Aristotle’s says, “ο άνθρωπος φύση πολιτικόν ζώον” (“The State is a creation of nature, thus man, by nature, is a political animal”). Aristotle notes that, what every being is in its most perfect state, is the nature of that being, whether it be a man, a horse, or a house. Hence it is evident that a city is a natural production, and that man is naturally a political animal, and that whosoever is naturally and not accidentally unfit for society, must be either inferior or superior to man.

The fact is, we live in a world full of intricate systems of power. Ignoring external and internal politics can and will affect the health of your project. Understanding how to successfully use good politics to manage stakeholders through leadership and influence is not only a key component to project success, but also a key ingredient to your own longevity as a professional in the industry.

Following are best practices for navigating project politics.

Be consistently ethical and authentic
Know that, in most cases, your project stakeholders would like nothing better than to be able to trust you. Be truthful and transparent. It will help you build integrity. Do it consistently, and it will help you build trust, an extremely important component of successful project management.

Observe the Shadow Organization
Although the organizational reporting structure of a project is important, its Shadow Organization is even more so. Observe your Shadow Organization by noticing who the hubs of social interaction and corporate intelligence are. Discover who has influence, who is respected, and who champions others. Create a visual map by way of who is leading the way (not just driving the bus). Classify every interrelationship, noting whether it is built on friendliness or respect, while noting the strength of each connection.

Build relationships without imposing agendas
Take the time to build your network without imposing personal agendas on your relationships. This will help you build a healthy network which will allow you to build visibility, attract opportunities, improve difficult relationships, and gain access to information. Allow your network to use you as a leverage point of solutions in a way that helps them to be successful. Realize that your self-worth is not synonymous with your net-worth.

Apply your power of persuasiveness through relevant value
Know that, in order for people to be persuaded, they need to see the immediate relevance and value of what you are saying in a way that fulfills their needs and desires. Realize that logic alone is rarely convincing unless it intimately connects to desire.

These are some of the key elements to navigating project politics. This Thursday, August 26, we'll look at how to promote full disclosure and openness as well as the importance of having humility when serving as a project leader. We'll also publish a presentation outlining the top steps to effective project management.

Be sure to check back or subscribe to Hedge IT so you don’t miss it!

Demetrios Gianniris is Director of Startups, Relocations and Projects (SRP) at Eze Castle Integration. He is responsible for overseeing the daily administration and operations of the Project Management team, including project design development, construction management, professional services and information technology consulting. Follow Demetrios on Twitter at www.twitter.com/dgianniris.

To help break down the new law, Eze Castle Integration recently hosted a webinar, and we asked Jeff Blumberg, Partner at Drinker Biddle & Reath LLP, a law firm based in Chicago, to give an overview of the Dodd-Frank Act and provide attendees with details on what aspects of the law will directly affect them.

After Jeff broke down the law, our own Managing Director Bob Guilbert examined the key technology areas where firms should be in compliance, in accord with this and other regulations as well as industry best practices. Let’s take a look back at a few of their key points:

The Legal Side

• Financial reform has come significantly later than originally expected, but will affect the breadth of the financial services industry
• Hedge funds and private equity firms will be required to register with the SEC if they have greater than $150 million AUM
• If you are a foreign private adviser, you are exempt if you have:
  
  • No U.S. place of business
  • Fewer than 15 direct or indirect U.S. clients
  • Less than $25 million AUM for U.S. clients
• The effect on venture capital firms is still unknown; the SEC has tasked itself with properly defining what a venture capital firm is within one year
• Investment firms are subject to periodic SEC inspections of records, including AUM, use of leverage, counterparty risk, trading and investment positions, valuation, types of assets held, side agreements, trading practices, and other information related to investor protection or systemic risk assessment
• All registration and reporting requirements will go into effect one year after the signing of the bill (July 2011)
• It is still unclear how individual states will respond to the new regulations

The Technology Side

• In addition to the Dodd-Frank Act, there are several existing regulations that require firms to employ certain technology practices or solutions, including NASD Rule 3500 Series, NYSE Rule 4370 and Massachusetts state law 201 CMR 17.00
• Having a business continuity plan and disaster recovery solution in place will ensure your firm remains functional and operational in the event of a disruption or disaster – and it is also something investors like to see!
• Identify your firm’s Recovery Point Objective (RPO) and Recovery Time Objective (RTO) to understand what the best disaster recovery solution is for you
• Disaster recovery can be managed in-house or outsourced to a third-party; DR can also be traditional and server-based or a managed/virtualized service
• The SEC currently advises hedge funds to retain all internal and external email and IM business communications
• Tape backup is not an adequate means of archiving
• Earlier this year, Massachusetts enacted one of the most stringent data privacy laws, requiring all firms with employees or investors in the state to secure personal information (PI) that is stored on servers, PCs and mobile devices and encrypt all transmitted records containing PI that travel over public networks
• Eze Castle Integration expects that future financial reform, at both a state and federal level, will continue to enforce best practices around busine ss continuity, disaster recovery, archiving and data privacy compliance.

What we’ve provided in this blog post is just a snapshot of what was covered on our recent webinar, New Regulatory Reforms: The Impact on Your Firm. But we’ve got you covered with even more resources in our Hedge Fund Regulation Knowledge Center, where you’ll find:

• Webcast: Listen to the complete recording from our recent event, featuring speakers from Drinker Biddle & Reath LL P and Eze Castle Integration
• Regulations & Technology Safeguards: We’ve identified the key technology safeguards firms should have in place to comply.
• Additional Documents: Blog posts, client alerts, and more!

According to the Standish Group's "CHAOS Summary 2009", only 32 percent of all projects in 2009 actually succeeded (delivered on time, on budget and within scope). Another 44 percent were challenged (completed late, over budget, missing scope), while 24 percent failed outright (cancelled prior to completion or never delivered).

That is an eye-catching statistic. Are project managers really that unsuccessful in today's world?

Suppose we poke a little fun at this statistic by playing a small role-playing game? Envision yourself as the ultimate project management failure. That's right. Your boss has hired you for one purpose and one purpose only - to ensure that no project is ever a success. What would you do to ensure that your project doesn't have a prayer?

Well, here are 10 sure-fire ways to be the best...of the worst:

1. Scopeless means hopeless: Make sure you spend as little time as possible (preferably none) defining your project scope. If your project doesn't have a purpose, nobody involved will ever know what theirs is. This way, when clients "hope" you'll get the project completed, they'll find comfort knowing everyone else on your team is doing the same.

2. Just get it done: Projects always get done faster when everyone works quickly. So don't waste precious project time putting procedures in place or worrying about checks and balances. Just send as many people out on a mission to get it done as quickly as possible. Just remember that the key is assigning the fastest project members. Besides, it's a lot more fun challenging yourself to finish this project faster than the last one. If you don't, that is a clear sign that you are losing your touch.

3. Summon your powers of knowing: Although you are too humble to admit it outright, the fact is that you are a lot smarter than anyone else on the project team. The so-called "experts" clearly aren't as qualified as you to make the right decision. That's why you are in charge, and they aren't. So why listen to them in the first place? Use your smarts to confidently make decisions on your own without consulting with anyone (especially the so-called "experts"). Besides, the true essence of leadership is being able to make the call when everyone else isn't capable of doing it. While you are at it, be sure to ignore the most unknowledgeable of them all...the client.

4. Put in the effort: As the project leader, you must ensure that everyone on your team knows you have no tolerance for slackers. This is not a field trip. Hard work is involved to ensure the project is completed. So be sure to push everyone as hard as possible at all times. Preach discipline by making sure everyone understands they need to just get it done, or else. Thanking anyone at any point is a sign of weakness, and there's no place for that on your projects.

5. Preach project importance: The importance of the project is a top priority. It is vital that your project group give the project their undivided attention. If people aren't dropping everything else on their plate for the project, they are clearly not exhibiting corporate responsibility and should be fired at once.

6. Work efficiently and set expectations: Setting expectations is key, but you don't have all day to explain them to people. Be an example of efficiency by summarizing all your expectations into one...that you expect everyone to simply get it done.

7. Documentation is a waste of time: If you spend half your project time documenting, that's precious time you have lost completing the project. There's no need for it. If people want documents, tell them to go to the library. This is project management, not English class. Besides, there is no reason people can't memorize all project details and remember them all, even years later.

8. The budget: Did somebody just dare to mention the word "budget"? Are they kidding you right now? This is not the Finance department. You are out on a mission to complete a project. Budget is not on your radar right now. Next please...

9. If the house burns, make sure you are not in it: The last thing you need on your project is problems. Assure that you minimize them by allocating as many resources as possible to putting out fires. Be sure not to put any of them out yourself. This way, if they ever potentially get out of control, you can just blame it on another project member’s inability to get the job done. Besides, nothing is more fulfilling than showing your boss you can clean up a mess by firing project members who are not pulling their weight.

10. Project Closure: No project can be considered complete without a closeout. This is the moment you have been waiting for...the moment you've worked so hard for. At last, you'll be able to close the project out by taking credit for all the things that went well and blaming everyone else for the things that went wrong.

Demetrios Gianniris is Director of Startups, Relocations and Projects (SRP) at Eze Castle Integration. He is responsible for overseeing the daily administration and operations of the Project Management team, including project design development, construction management, professional services and information technology consulting. Follow Demetrios on Twitter at www.twitter.com/dgianniris.

Overseas expansion requires a number of strategic considerations. Today, let’s examine some key business and technology factors as well as prime broker considerations.

Let’s start out with some key first steps.

One of the most important steps a hedge fund must take in beginning the international expansion process is to understand the local government requirements for establishing a new business in the selected region. These local regulations will impact launch time and all additional aspects of business.

To better understand these regulations, there are several steps a fund should take. First, talk with industry peers to gain first-hand knowledge of their experiences. Once a fund manager (or other administrator assigned with the task) becomes comfortable with the available options, he or she should set up meetings with key vendors and partners.

Secondly, the manager should become acquainted with local market regulations. Rules and regulations for the necessary stock exchanges(s) should be read thoroughly. Thirdly, a manager should leverage a number of important relationships:

• Legal: Many legal firms have international offices or at the very least they can refer you to an in-country law firm that can assist with the incorporation and employment visa process.
• Banking/Accounting: Many of your existing firms may already have an international presence, and firms may be able to startup accounts from a domestic office.
• Prime Brokerage: A firm’s prime broker can answer questions on custody, settlement and trade execution.
• IT Provider: As far as technology requirements are concerned, a firm’s IT provider should be able to help the firm de fine its international needs and implement its systems globally with ease. They should be able to support U.S. and international offices seamlessly.
• Real Estate: A firm’s real estate broker is a key partner is defining its international presence. These individuals understand the local environment, as well as what they can obtain for the firm in regards to services and pricing.

Business and Technology Factors

One of the first decisions a firm will need to make when setting up an international office is selecting a location. A number of factors should be taken into consideration, including the size of the space, location and ability to support the firm’s technology needs. A firm will want to consider locations that offer adequate power, cooling and redundancy to support the technology requirements, as adding the items can be very costly and time consuming.

As mentioned, infrastructure needs can play an important role when establishing a new office, particularly in international territory. A firm should be able to make a location work for its specific technical needs. Identifying a good architect, engineer and technology provider will ensure that a firm is able to adequately assess its individual infrastructure needs.

When choosing an office space, a firm must consider whether it will choose to host its technology infrastructure in-house or store at a local data center. Hosting equipment requires a tremendous amount of power, electrical support and dedicated cooling systems for hardware and backup power systems. In addition to many servers, an office location would need to have the necessary power to run all front end equipment for each user, such as monitors and PCs. More and more, firms are turning to colocation facilities to host their back-end server infrastructure. These colocation centers are built to house thousands of server cabinets with high levels of cooling and electrical power and substantial redundancies.

When a hedge fund is choosing its technology provider, it should ensure that they are situated and/or have engineers located within the area and are appropriately staffed to be able to handle multiple client incidents. A firm does not want to be an engineer’s third or fourth stop of the day. Additionally, remember that many applications can be run out of a domestic office in the U.S. so a firm must determine what has to be housed locally and what can be remote.

In a follow up article we discuss the Prime Broker perspective.

You can also download our full article on this topic, ‘Expanding Your Hedge Fund Internationally: Operations and Trading Considerations'.

Finally, learn more about how Eze Castle can help you expand your hedge fund operations.

It is estimated that by 2012 we will have exhausted all the available IPv4 addresses. In fact, TMCnet predicts that “by the beginning of August 2010, there were only 6 percent of IPv4 addresses remaining.” IPv4 gave us 35 good years of addresses, but now we must look to a new protocol to keep up with the Internet's substantial growth.

The expected solution is the new IPv6 protocol, which will allow for substantially more IP addresses -- trillions upon trillions of new addresses. IPv6, however, is still in its infancy and is not yet widely deployed.

According to Cisco, there has been much security testing and development of mechanisms to secure the protocol. Many commercial security testing tools have been updated to support the IPv6 protocol; many others have it on their road maps. Various security concerns around IPv6 have already been identified, such as insecure neighbor discovery, tunneling, and auto-configuration.

RFC 3971 Secure Neighbor Discovery Protocol (SEND) and RFC 3972 Cryptographically Generated Addresses (CGAs) are two outcomes of early security research. It is possible that they may help mitigate the weaknesses with the default neighbor discovery process. A key challenge, however, is that not all devices support these new standards.

One potentially straight-forward way to combat the threat posed by IPv6 is to educate your IT staff that the process of switching to the standard should not be done without thorough testing and researching of potential vulnerabilities. No firm should assume that because the new standard is solving one problem, it isn’t creating others.

Risk Alert: Cisco’s Take

In Cisco’s 2010 Midyear Security Report they predicted a “Perfect Storm” technological change. The following paragraphs outline Cisco’s risk alert for today’s firms.

IPv4 address exhaustion and the move to IPv6, the need to implement DNSSEC, and the switch from 2-byte to 4-byte Autonomous System Numbers (ASNs), which marks a change to the Internet’s inter-domain routing structure, will ultimately change the way the Internet functions. Any one of these changes represents a significant architectural and operational challenge for network operators. Together, they create a “perfect storm”— described as “the greatest and potentially most disruptive set of circumstances in the history of the Internet, given its growth in importance to worldwide communications and commerce.”

Of course, this means that enterprises are at risk as well. The question: Is your enterprise prepared for the arrival of these “multiple, simultaneous, and large-scale changes”? The storm is approaching fast—but organizations have known for years that it was coming. Therefore, your security team already should be carefully planning for these changes and making necessary updates so they can help minimize the organization’s security exposure and ensure the network infrastructure, from routers to firewalls to switches to software, is protected as the transition to each new service occurs.

Expect to see many businesses preparing for the storm in the coming year. They will likely need to expend a great deal of time, money, and resources on adapting to these significant changes, which are inconveniently culminating post-recession, when IT resources are already limited at many organizations.

U.S. government organizations are likely to be particularly preoccupied with getting up to speed, as many failed to comply with the December 31, 2009, deadline set by the U.S. Office of Management and Budget to deploy new authentication mechanisms (for example, digital signatures for DNSSEC) on their websites that would help prevent hackers from hijacking web traffic and redirecting it to bogus sites.

Download the complete Cisco 2010 Midyear Security Report here.

Or, contact us to learn more about how we’re helping clients prepare for IPv6.

Businesses across the world – including hedge funds – enacted pandemic response plans in an effort to keep their day-to-day operations running smoothly and without major disruptions due to staffing issues. And while no one expects a repeat of 2009 this flu season (particularly since the H1N1 vaccine will be readily available from the start), it is still essential for funds to have pandemic response and business continuity plans in place in the event of any type of disaster.

We’ve outlined six key steps firms should take to ensure their businesses remain at peak performance during disastrous times:

Begin response procedures BEFORE a disaster strikes.

Organizational resiliency starts by strengthening your organization during normal business operations prior to a disaster such as a pandemic. It should not take a disaster to compel your firm to evaluate its business continuity and response processes. One should be in place long before disasters strike.

Identify who will serve as crisis leaders and be in charge of handling situational changes that may occur, including communication to other employees about response procedures and alternative site locations. Also, certify that all employees are cross-trained within the organization; if there is a staff shortage as a result of a pandemic, employees will need to fill additional roles and responsibilities. Non-critical employees may be able to take larger roles and assist during a pandemic response phase.

Develop disaster/pandemic procedures based on a variety of scenarios.

Be proactive. As part of the planning process, create a list of potential scenarios and define your firm’s response strategies. Impact scenarios should include both potential internal and external occurrences.

For instance, what is your response if access to your office building is restricted? How will you access your email, market data and portfolio management systems? Where will employees work and how will they communicate with colleagues and counterparties? Externally, how will you operate if your prime broker or fund administrator contacts are unavailable? Being prepared will ensure your business operations continue seamlessly and without interruption.

Thoroughly review and modify your business’ Employee Assistance Program (EAP).

An EAP provides assistance and access to counseling services for issues in and out of the workplace. In the event of a disaster, employees may wish to speak with a professional counselor to deal with any stress or negative emotions that have resulted from the event. If you cannot provide a physical counseling presence, provide a list of area clinics that offer comparable services. In advance, consider preparing educational materials that inform employees of the various stress indicators and reactions they may experience as a result of a disaster. If employees know that support is available prior to a disaster, it will mitigate panic and stress, and they will be better able to adapt to changes in their environment.

You should also inform employees about current sick leave and family support policies in the event that someone is forced to take an extended leave of absence.

Test alternate site and remote access capabilities.

If a crisis situation is directly affecting your physical workspace or your employees, you must be prepared to provide alternatives. You may choose to move business operations to an alternate site where employees can go without risk. An alternate site would make sense for crisis situations that are confined to specific areas, such as natural disasters, outages or other situations.

In a pandemic situation – particularly if you have had any outbreaks of illness amongst your employees – you may choose to allow employees to work remotely. If this is a viable alternative, ensure ahead of time that you have adequate capacity and infrastructure to support multiple virtual private networks (VPN) and remote access capabilities. Confirm the number of Citrix licenses you have available; if there are not enough to support your complete staff, you may need to consolidate responsibilities.

Review your business response plan and procedures with team members and leaders.

Develop communication notification and escalation procedures for response team leaders and assign internal notification tasks to each leader. Identify if there are external business partners who need to be notified as well (i.e. investors, service providers, etc.). Assign a primary and secondary spokesperson in case the public needs to be notified, and ensure the spokesperson(s) has training and experience dealing with the media. If your spokesperson does not have training, now is the time to arrange for crisis communications training.

Test your pandemic response plan.

It is important to test your company’s response plan with leaders and response team members to ensure there are no glitches or obstacles in the event of a real disaster. Test internal communication strategies – from response team leaders to staff members. This can be done manually or through an automatic notification system. You can also send employees to work at the alternate site or to work remotely to ensure there are no technical issues that can affect productivity.

Business Continuity Professionals say that “planning” helps mitigate panic and downtime. It takes work and resources to develop a resilient organization prior to an interruption or disaster, but it is imperative if businesses want to stay operational. Businesses cannot function without employees that maintain knowledge and expertise to operate the business, and those employees need to know what to do during an interruption or disaster. Without a plan, you will spend the entire time chasing the incident instead of recovering from it.

Additional Resources:

• H1N1 Pandemic Planning Knowledge Center (contains webcasts, whitepapers and more)
  
• Whitepaper: BCP-A Guide to Pandemic Response Planing (full version of this blog post)
  
• Report: Establishing Business Continuity & Disaster Recovery Plans

Photo Credits: Alliance for Natural Health (Europe)

Data center tiers – Tier I to IV – represent a standardized method to define the uptime of a data center. The tiers are useful in measuring:

• Data center performance
• Investment
• Return on investment (ROI)

The four tiers, as classified by The Uptime Institute, include the following:

• Tier 1: composed of a single path for power and cooling distribution, without redundant components, providing 99.671% availability. This is the simplest and typically used by small businesses.
  
• Tier II: composed of a single path for power and cooling distribution, with redundant components, providing 99.741% availability.
  
• Tier III: composed of multiple active power and cooling distribution paths, but only one path active, has redundant components, and is concurrently maintainable, providing 99.982% availability.
  
• Tier IV: composed of multiple active power and cooling distribution paths, has redundant components, and is fault tolerant, providing 99.995% availability.

As you can see, Tier IV is considered the most robust and least prone to failures. It is designed to host mission critical servers and computer systems. The cost of colocating in a data center increases as the tier increases. Tier II and Tier III facilities generally meet the uptime requirements of most hedge funds and investment management firms.

Here is a graphical representation of the tiers:

Data center tiers are becoming increasingly important as hedge fund and investment firms look to cloud computing infrastructures to increase agility, reduce operating costs, and simplify IT infrastructure and application management. Our Eze Cloud infrastructure is built across multiple Tier II and Tier III data centers to deliver the availability and performance investment firms require.

As a hedge fund evaluates its data center options for colocation or explores why cloud computing may be right for the hedge fund it is essential to understand the differences between each tiers. We hope this article was helpful in defining the distinctions.

Also, be sure to checkout our article on hosted business applications and what hedge funds must consider.

Sources: The Uptime Institute and NnixCraft
Image Credits: Greybar

We’ve developed a checklist for you and outlined six new ways to make your operations more efficient and help you save money. Are you ready?

Virtualization Technology

• Consolidate. Combine multiple servers. This will increase your floor space and reduce your power and cooling expenses as well as your hardware & software costs.

Purchasing

• Think ahead. Purchase multi-year software licenses, and you can usually get a discount. You can also buy hardware in bulk. Even if you don’t need a dozen PCs or printers, you will end up paying more out-of-pocket if you order at the last minute.
  
• Be resourceful. Take advantage of vendor relationships. Buy in bulk, when possible, and ask about rebates and/or special incentives that could reduce costs. You can also inquire about blanket discounts. You might be able to make an arrangement in which all purchases within a certain timeframe are locked in at standard prices.
  
• Evaluate. Take a close look at your internal requirements and whether you need all the functionality that each service and product offers. In most cases, your service provider can give you a standard package, and upgrades can always be made at a later time.

Market Data

• Evaluate again. Firms can pay upwards of $2,000 per month per user for access to market data such as Bloomberg’s, which typically does not support the ability to parse down features and functionality based on a user’s need. Firms might want to evaluate other vendors, such as Thomson Reuters, in an effort to find a service that is more flexible and could reduce costs.

Telecommunications

• Just ask. It can’t hurt to ask your telecommunications provider if there are any ways to reduce costs. Of course, they want your business, but they also want you to remain a valued and satisfied customer. So they will often go out of their way to help you lower your telecomm bill if you ask them to.
  
• Try WAN Optimization. WAN optimization can often reduce costs for a firm in the long-run. Vendors such as Riverbed Technology offer premium, but cost-effective, optimization solutions that can reduce network traffic, thereby lowering bandwidth costs.

Broker Execution

• Research. Many broker services have been offering lower costs to firms since the recession hit. Do your research and negotiate prices, and you might find more financial room to work with.

Disaster Recovery & Data Protection

• Take a phased approach. While we don’t recommend that a firm operate without data protection and backup in place, it is possible for firms to take a phased approach with their disaster recovery deployment. Focus on protecting business critical applications. You can always upgrade later when more resources become available.

To learn more about ways you can increase efficiency and reduce costs at your firm – without sacrificing performance – contact us directly.

Photo Credits: Flickr

Hosted Apps for Business – An Overview

Over the last two years, hosted applications have emerged as a powerful and intriguing service. A number of large companies, many not traditionally focused on IT services, have come out of the woodwork looking to offer these services on top of their base business models. Everyone from Cisco and IBM – technology-focused companies – to Google and Amazon has started using the cloud. Google’s Business Apps emerged as a front-runner early on, led both by an intriguing business model and, of course, the biggest name within the Internet business.

Among the key features Google advertises are proven cost-savings, a 99.9% uptime guarantee, and 50% more storage than the industry average. Google even offers multiple editions of their apps “tailored to specific customer needs.” In addition to their Standard Edition, they offer an Education Edition for schools, colleges, and universities and a Premier Edition for “businesses of all sizes”.

Key Considerations

While Google’s price point is likely the lowest a business will find, the level of service offered at that price must be thoroughly vetted before entering into an agreement, particularly if you are an investment firm operating in today’s market. There are a number of specific considerations that should be taken into account beforehand.

Understanding of Business Requirements
While Google boasts that their various editions are tailored to meet the specific needs of businesses, this is not exactly a fair statement. The description of their Premier Edition lists the services as ideal for “businesses of all sizes.” But it is not solely a business’ size that determines their specific needs. For example, a small home-grown business in Oklahoma that sells personalized stationery is not going to have the same business needs or support requirements as an investment firm operating on Wall Street. This is where financial firms need to be careful not to jump into a service based solely on cost alone.

A firm must carefully consider their every-day business and support requirements before migrating to a service like Google’s.

Security of Data
One of the foremost concerns when any business puts their data and infrastructure in the hands of a third-party is security. Google lists “security and compliance” as one of the key features of their product, and did eventually bring on e-mail security provider Postini to provide additional security services. These services are basic, though, offering tools to eliminate spam, protect against internal information leaks, and retain emails. These tools are sufficient for small mainstream businesses; however, investment firms require increased security and compliance measures, including email archiving, on a daily basis.

More and more, investment firms are using e-mail as a business-critical application, which means that basic security is not going to suffice. Additionally, as we move into an era of increased transparency and calls for strict compliance regulations, investment firms will require significant security and compliance measures to keep their data protected or archived at all times.

Migration/Future Growth Concerns
Another consideration to keep in mind when determining if hosted applications are a good fit for your firm is your potential for future growth. With Google Apps, there is no easy way to migrate data if a firm decides to move its data off of the hosted app service. As your business grows, you should keep in mind that with that growth will come the need for additional services and requirements. It is highly likely that you will need to integrate with IRM and CRM systems, for instance, which is not possible when using a service like Google. In the event you suddenly require these services, migrating your data off of a Google-like platform is going to be complicated and likely time-consuming.

Oversubscription & IT Support
A big concern that arises when giant enterprises such as Google offer paid services at a very low price point is oversubscription. Because the service is offered at low cost and to virtually any size business, it is destined to attract tens of thousands of customers, each vying for the maximum server space available. In an attempt to provide these services to this many customers, it is a very real possibility that the service provider will oversubscribe their servers and risk shoddy service as a result.

With this number of users, speed of service is likely to be negatively impacted. It could take significantly longer to send or receive an email – a delay that those operating in the investment industry cannot afford. If a firm is relying on email for business operations, particularly in a volatile market, when every deal and every dollar can have a significant impact on business, that firm requires real-time services that will not put business at risk.

In addition to concerns about the service provider oversubscribing servers, firms might also want to consider the possibility that their employees will likely be spending a significant amount of time learning how to use a hosted application service. For example, if a firm signs on to use Google Business Apps, they will need to train all employees to use that service and likely train internal IT employees to become well-versed on the service in the event of application issues.

Though Google boasts that it offers 24x7 customer support for its apps service, it is far from a typical helpdesk. Customer support through an entity like Google is often impossible to navigate and time-consuming to get another human being on the opposite end of the phone. In the event of a serious IT issue, end-users’ employees will need to have an extensive understanding of the hosted service in order to provide adequate support.

Alternatively, if a firm does not have IT staff, other employees will need to learn to solve problems on their own, which can interrupt the time they are spending on their daily business tasks. In a CNN Money article, Founder Jonathan Blum of Blumsday LLC, a business-to-business tech content company, wrote about how Google Apps wasn’t working for his company. Blum said he and his employees were spending too much time each day resolving issues. “You’re paying people while they struggle through this cultural shift to Web-based applications – and that can be very costly.”

Other Considerations
Blum also highlighted another issue he encountered when he relied on Google Apps for his business services: identity concerns. Because Google is entirely web-based and allows for multiple email accounts through its service, it can lead to identity confusion. There can be easy confusion between corporate and personal Gmail accounts. Also, if employees share computers, they will need to be extra cautious and careful not to save their account logins and passwords on shared portals.

Investment firms should also be thinking about the kind of best practices they are employing. Business continuity and disaster recovery plans are becoming near-requisites for most investors. Mass-marketed hosted applications typically do not include such services. Firms would, therefore, have to work with two separate third-parties to accommodate this desired outcome.

Conclusion

Hosted applications will surely continue to improve and adjust to the changes in the business landscape, but while there is value in their services, investment firms have very specific needs and requirements and should work with technology providers with financial expertise and experience. These traditional third-party IT providers are better equipped to service the needs of financial firms and adapt to the continuous changes within the industry.

Our hosted IT solution, Eze Virtual Office, for example, offers hedge funds the capabilities of a fully managed infrastructure and key business applications that are 24x7x365 by IT professionals that understand a hedge funds's business.

Be sure to checkout our Eze Cloud infrastructure as well.

Managing Counterparties

With the fall of many banks and with prime services divisions being downsized, firms are challenged with increased bank counterparty risk. The newly signed Financial Reform Act puts even greater stress on hedge funds to minimize risks.

Many firms have determined that going multi-prime is the best method for alleviating the risk associated with the most recent banking crisis. The prime broker selection process does pose its challenges as there are many considerations involved, but as banks are aggressively looking for business, the process is manageable. Most banks are trying to make the process as seamless as possible in an effort to attract and win new business.

Transitioning to a multi-prime environment poses many operational and technical challenges, as firms will need to evaluate what changes they will need to make to their operational workflow and technical capabilities. Firms will also need to determine what services and technology the new prime will supply as well as what services are being transitioned or eliminated from the current prime.

Adding additional counterparties will change the way a fund operates and increase the complexity of daily business processes. The major workflow challenges within a firm revolve around aggregation of data, risk management, accounting and reporting. Firms will need to determine if their existing technology/infrastructure and staff can handle the new workload and will have to adjust accordingly.

Key counterparty considerations:

• Adding a new counterparty has a trickledown effect on your operations and how you interact with all counterparties. For example, when going multi-prime, a firm will have to evaluate how to work with its current fund administrator to ensure they can support their new multi-prime operation.
• Evaluate your staff, technology and counterparties to ensure they can support the additional workflow and systems that you will add to your operation.

Budgeting for Hedge Funds

The current economic environment has forced funds to re-evaluate their operating budget and come up with a stricter model that is well-documented and followed. Regulatory bodies, as well as investors, are also pushing for more transparency in order to determine where management fees are headed. (To learn more about the recently enacted Financial Reform Act, visit our Resource Center.)

Funds are taking a more diligent approach to budgeting and are putting forth a strong effort to evaluate their internal operations, payroll and technology responsibilities.

Budget guideline:

• Determine a baseline operating budget number: The management fee is a good start. A baseline will provide you with parameters to work with when evaluating the various components of your firm. You will also want to break down what items can be paid for via soft dollars (fall under 28e) versus hard dollars.
• Staffing: Determine your staffing needs, including roles and responsibilities. By doing this you will have the ability to determine payroll needs (excluding bonuses), employment taxes, health and benefits cost, office size, etc.
• Building and facilities: Re-visit your current office expenses and lease obligation to determine total cost; there may be an opportunity to renew your lease at a lower cost in a down economy.
• Technology: Complete a technology audit, and determine mission-critical applications. This will provide you with the ability to eliminate unneeded technologies and budget needed upgrades or additional technologies.
• Outsourcing: Determine annual cost for legal fees, audit, consultants and administrator fees
• One time versus recurring: When budgeting, make sure to note what is a one-time fee (a new PC) versus something that is recurring (market data).
• Build an in-source/outsource ROI model. Outsourcing operational, administrative and technical responsibilities to specialists may eliminate costly overhead.

Key budget considerations:

• Budgeting is not an exact science as each firm will have different business needs. If you were to look at your budget from a macro view, the bullets above are a good start. As a firm evaluates its needs at the micro level, the various line items will change accordingly.
• Budget according to current need, and don’t forget to include some room in your budget for unforeseeable expenses (legal fees, consultants).
• Keep ahead of the market. If regulations and compliance requirements change, so will your staffing and technology needs.

Eze Castle Integration has extensive experience with helping hedge funds manage counterparty risk and budgeting. Contact us to learn more.

Next Thursday (7/29), we’ll have a checklist for you with tips for optimizing operations and reducing costs! Subscribe to Hedge IT so you don’t miss it!

Here's a video of President Obama signing the Financial Reform Bill into law.

Hedge Fund & PE Regulation Resources

We've created a Financial Reform Bill Resources page to help hedge funds and private equity firms prepare for registration. The new bill states that advisers must comply with the new provisions within one year of enactment of the conference report. Of course, you can register earlier with the SEC.

Check it out.

Planning Ahead: Technology Requirements for Compliance

Here's a snapshot of what the new regulation means from a technology perspective.

Requirement	Solution	More Information
Data Retention & Archiving SEC advises registered firms to retain all internal and external electronic communications Required by NASD Rule 3500 Series & NYSE Rule 446	Eze Archiving Archives messages in SEC-compliant format Features easy searching and recovery for rapid response to discovery inquiries Learn More
Disaster Recovery President's Working Group Report advises firms to establish a disaster recovery and business continuity plan to mitigate risks and meet industry best practices	Eze Disaster Recovery Fulfills regulatory and investors' requirements for data protection and continuous availability Proven and cost-effective DR solution used by industry's largest hedge funds Learn More
Business Continuity Planning Recommended operational component by SEC and investors to mitigate continuity risks and protect business	Eze BCP Beyond IT operations, BCP focuses on critical operations and processes Includes Risk Assessment, Business Impact Analysis, Plan/Strategy Development and Testing/Training Learn More
MA Privacy Compliance Law (201 CMR 17.00) Requires any company that owns, licenses, stores or maintains personal information about MA residents to develop a WISP and deploy security safeguards	Eze Privacy Compliance Fulfills compliance Includes creation of a Written Information Security Policy (WISP) Implementation of necessary technology safeguards, including email encryption Learn More

Most hedge funds have been here before. Back in December 2004, the Securities and Exchange Commission (SEC) issued a rule forcing hedge funds to register under the Investment Advisers Act by February 1, 2006. But just a few months after the rule went into effect (June 2006) and after around 2,500 hedge fund advisers had registered, the rule was struck down by the U.S. Court of Appeals.

So now that we’ve walked down memory lane, let’s take a look at what is included in the Dodd-Frank financial reform bill:

1. The big one is that hedge funds and private equity firms with greater than $150 million in AUM must register with the SEC.
   
2. If you’re an adviser of a private fund with less than $150 million in AUM, you’re exempt. That said, if you anticipate growth, you may want to go ahead and act like a registered fund.
   
3. The assets threshold for federal regulation of investment advisers is being raised from $30 million to $100 million, a move that will allow for greater state supervision of advisers. With state supervision playing a larger role, the SEC can then dedicate its energy to larger investment advisers, hedge funds and private equity advisers.
   
4. The “private adviser” exemption in the Investment Advisers Act of 1940 has been eliminated, “thus registering advisers to private funds with the SEC.”
   
5. Reporting requirements to the SEC are going to increase – especially if the SEC thinks your fund poses a systemic risk. They have the power to require advisers to provide information on trades and fund portfolios as necessary to assess systemic risk. Annually, the SEC will report to Congress on how it uses the data to protect investors and market integrity.
   
6. The SEC can now also require investment advisers to disclose the identity or investments of their clients for purposes of systemic risk.
   
7. An incentive – up to 30% of funds recovered for information provided – has been put in place to encourage whistle-blowing.
   
8. Advisers must comply with the new provisions within one year of enactment of the conference report, but of course, you can register earlier with the SEC.

There are also changes to what defines an accredited investor. We’re going to quote an outside expert here – Kevin Scanlan, a partner at Dechert, told HedgeFund.net, “If you’re an adviser who wants to bring in a natural person as an investor, he will generally have to meet the $1 million net worth requirement not including the value of his primary residence. But if you want to charge a performance fee, the same investor would generally need a net worth of $1.5 million which will increase over time because it has to be adjusted for inflation.” To meet the $1.5 million threshold, the value of the primary residence can be included.

Want to read the Conference Report and Joint Explanatory Statement in full details?

• Click here for the text of the Conference Report; and
• Click here for the Joint Explanatory Statement of the Conferees.

So what can you do today to prepare for registration?

We’ll take from our area of expertise – Technology.

Data Protection: As stated by the President's Working Group's Best Practices for Hedge Funds, “to mitigate financial loss in the event of a disaster, the Manager should establish a comprehensive Business Continuity/Disaster Recovery plan.”

The reality is, having DR is becoming a non-negotiable item on most investors' due diligence checklists. We've seen plenty of investors withhold allocations until a DR system was in place. Check out our article on the disaster recovery considerations for hedge funds to learn how to get started. You can also visit our Disaster Recovery Knowledge Center, which is full of resources and information.

Data Retention: Beyond having a disaster recovery plan, registered firms are advised to retain all internal and external email and IM business communications. An archiving solution, such as Eze Archiving, can help in fulfilling this.

We're following these developments closely and will continue to report on significant events. We'll also be holding an educational webinar on the topic in August, so keep an eye out for the invite or check out our events page next week.

A key challenge in today’s landscape is weighing cost versus benefit when it comes to maintaining internal hedge fund operations and technology. Over the past two years, cuts have been made from personnel to infrastructure and everywhere in between, but ultimately, firms need to remain fully operational without sacrificing performance and efficiency.

So how does a firm go about maintaining their existing operations while still 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. Today we’ll explore two of these key challenges: Hedge Fund Staffing and Hedge Fund Technology.

Be sure to check back in with us next week when we examine Managing Counterparties and Budgeting. And remember, you can always Subscribe by Email to our blog so new articles just appear in your inbox.

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.

When evaluating staff, a manager should look at each role within the firm and determine what tasks could be consolidated to reduce possible duplication of work and increase operational efficiency. During periods of growth, firms tend to hire quickly as they look for bodies to complete new tasks, but as firms tighten the reins, they are finding that consolidating tasks into one role makes sense. Firms are also finding significant ROI with outsourcing tasks to third-party specialists as firms can reduce headcounts while increasing operational efficiency.

Here are some key hedge fund staffing considerations:

• Identify roles and responsibilities of your staff and establish clear-cut operational goals and objectives.
• Only reduce staff when you can consolidate tasks without risking your operational integrity.
• Look to outsource certain components of your business as there is ROI to be found.
• Seek third-party advice when starting up your firm (staffing, legal, technology, other).

Hedge Fund Technology

Technology selection, maintenance and support have always been challenges to investment managers. Much like a strong hedge fund operating model, a well-architected technical infrastructure is a must-have in order to support your staff and provide the ability to scale your technology needs down the road.

As firms are challenged with reduced technical budgets, they should evaluate which applications are mission-critical to their operations as well as evaluate hardware components to ensure they are under warranty and have continued support. By determining mission-critical versus non mission-critical applications, firms can assess where they can reduce costs. A simple exploratory audit with your staff members can help determine which applications, data or research services are not being used and may no longer be necessary.

Balancing resources with technology is also a challenge when evaluating your operation. There are many systems built specifically to help automate a fund including front, middle and back office systems. Most systems were created to save time and reduce manual errors, which is always beneficial, but these systems don’t work on their own. Ensuring that you have the appropriate resources and are informed and trained on these are the most important aspects of your operation.

Although the technology is automating your business process, understanding the system functionality, the support model and the expected services level from a third-party vendor is often overlooked by hedge fund managers and hedge fund staff.

Here are some key hedge fund technology considerations:

• Complete a technology audit and establish mission-critical applications.
• Review your infrastructure to determine its ability to support your existing needs and ability to scale.
• Evaluate the cost of technology and eliminate what is not needed to reduce operational costs.
• Automate and streamline your data in order to reduce manual processes. Automation will help scale your business, reduce your overall headcount and eliminate operational risk.
• Remember technology/automation must be supported.
• Recognize the common technology mistakes and how to avoid them.

For more tips on how to reduce costs and increase efficiencies in today's economic landscape, visit our Cost-Saving Strategies Knowledge Center.

Coming up on Thursday, 7/22: Hedge Fund Operations: Managing Counterparties & Budgeting

*Photo Credits: Flickr

Public Relations Management

Public relations has to be one of the most ignored marketing tools of hedge fund managers today. I have worked with over three dozen hedge funds on their marketing plans and capital raising efforts. So far, the most intense public relations effort I have seen set forth was a single press release over a four-year period. This is not to say that any hedge fund that is not publishing at least four press releases per year is doing something wrong. However, many could benefit by simply making themselves more available to the press.

The media is hungry for real time opinions of hedge fund managers, traders and marketers. They need comments on current market conditions, trends in hiring and firing of traders and portfolio managers and what prospects lay ahead for the industry as a whole.

Many hedge fund managers shy away from contributing to stories in the press. I would strongly encourage you to speak with your legal counsel and see if they would approve of your discussions with the media if you stick to industry trends, general market trends and long-term movements you are seeing within the industry.

Top Four Tips for Taking Advantage of Public Relations for your Hedge Fund:

1. Speak to your legal counsel to check on exactly what you can say or not say to the press.
   
2. Develop a list of 10-15 targeted publications which you would like to appear in. Identify the editor of financial columns within that publication or news source and introduce yourself to them as a resource.
   
3. Speak at public events, conferences, networking events and other places in the industry where you will be heard not only by others in the industry but probably a few members of the press as well.
   
4. Consider writing a book on your insights and experience. Many professionals in the hedge fund industry are often interviewed on TV after they have published a book on a specific topic in the hedge fund industry, such as regulation or quantitative trading. Yes, writing a book sounds extreme to many who are already working 50 hours a week but that is also why it would be so effective to consider doing so. Those with the time and skills to write well are often not the same with those who have the experience and insight to write something unique and valuable.
   
   (NOTE: Richard Wilson recently published a book titled "The Hedge Fund Book: A Training Manual for Professionals and Capital-Raising Executives." We are proud to say our very own Vinod Paul is quoted on pages 21 - 24 in the book.)
   

Educational Marketing

One of the most effective ways you can market your hedge fund is by being [four times] more educational and easy to understand than your competition. I wrote in my blog last year that a recent survey showed that over 78 percent of institutional investors will not invest in something which they cannot understand. I would imagine that for high net worth investors this figure is even higher.

While some managers [purposefully] position their fund to appear "black box" and top secret, you could market your fund as being more open, transparent and simple in how you approach explaining your investment process. This does not mean that you ignore advanced methods or models of trading and managing portfolios, but it would require more of a 10,000 foot view and explanation of your investment process instead of the 500 foot views that I often see. The trick in doing this right is balancing providing enough detail and real meat that an institutional investor or consultant will gain some granularity while you don't completely overwhelm high net worth investors or wealth managers who may be less versed in common hedge fund strategies or portfolio management techniques.

Here is a list of four additional ways you may market your hedge fund in a more educational or simple way:

1. PowerPoint - Dedicate 20 percent of your PowerPoint presentation to educational content. Asterisk all industry terms and note that definitions are provided within the back of the presentation. Explain your investment process so that anyone could understand, at least on a high level how your fund operates. Start 1. with your team, high level investment process and how that all comes together before digging into trading examples or risk management tools.
   
2. Folder - Many managers use a folder of marketing materials while meeting with clients. This often includes a one pager, PowerPoint presentation, and a recent quarterly market outlook newsletter written by the PM. It is wise to always include some additional reading within the folder as well. Provide 2-3 white papers written by experts outside of your firm that speak to the trends related to the assets your firm invests in or strategy your firm employs.
   
3. Speaking & Writing - This also came up within the last post in this series on public relations but I would highly recommend writing and speaking every week to help build a presence, brand and network within the industry. Speaking at wealth management conferences and HNW related events can be highly effective.
   
4. Wealth Management & Financial Planners - One of the most ignored sources of capital for hedge fund managers are small to medium sized wealth management firms and financial planning groups that serve HNW professionals from time to time but don't manage $1B+ in total assets. Many of these groups work as part of a broker-dealer network or RIA and they may only meet in person with 5-10 hedge funds in any on year vs. larger institutions which may meet with several each week. These relationships take a long time to build into effective sources of capital but I have found that if you approach them in a more educational fashion than your institutional leads they can pay off as very sticky long-term accounts.

For more information on hedge fund marketing, be sure to read our three-part series on hedge fund communications and marketing from BK Communications. The articles look at:

• Tips on Refining Messaging and Building Relationships

• How to Prepare for Investor Meetings: the meeting prep check list

• Building Rapport with Investors: Rules of the road to win assets

Check out this graphic to see our steady climb.

Not everyone is likely familiar with the VAR500 technology integrator list or understands why it matters, so let me fill you in. The VAR500 list is created every year by Everything Channel and identifies North America’s top technology integrators or value added resellers (VARs). It is estimated that there are nearly 90,000 VARs in North America alone, so being in the top 500, make that top 400, is a great accomplishment.

Technology heavy weights, including Microsoft, HP, Cisco and Symantec, all rely on the VAR500 to sell their products and deliver value adding solutions to end-user firms. Needless to say, those four companies are close Eze Castle Integration partners. In fact, Microsoft filmed a video about us in June 2010, which we look forward to sharing in the next month.

So what gets you on the list? It’s a combination of revenue growth and product breadth, which typically go hand-in-hand. Here at Eze Castle Integration we continually expand our hedge fund product and service offerings to ensure our solutions match our clients’ needs.

As an example of this, we heard from clients that they needed disaster recovery solutions but often paused at the cost of traditional DR offerings. To lower the barriers to entry we developed a virtual disaster recovery offering that provides the business protection and high availability hedge funds need, but at a fraction of the cost of traditional DR systems.

We took a similar approach with the hedge fund business infrastructure. We developed a hosted hedge fund platform that provides the business applications and infrastructure a hedge fund needs to operate and is delivered as a bundled monthly service. With our hosted IT service, Eze Virtual Office, hedge funds gain an enterprise-grade hedge fund infrastructure and are able to minimize operating expenditures.

So Eze DR and Eze Virtual Office are two examples of new hedge fund managed services that helped us make the VAR500 list.

Looking forward to climbing further up the 2011 list!

Good relationships should be a key goal for any manager because they help secure and retain clients. In a previous blog entry on how to prepare for investor meetings, we cited two pillars of relationship building: credibility and rapport. A lack of credibility will give potential investors a reason not to do business with you. Strong rapport will give them every reason to do business with you. Since investor decisions often hinge on the meeting, the in-person contact that leads them to trust – or not to trust – the hedge fund manager with their money, building credibility when making a presentation is crucial. In our last blog entry, we outlined specific steps to build credibility. Today, we’ll do that for rapport, excerpted from our most recent Strategic Commentary, “It All Comes Down to the Meeting.”

Understand, and be understood. Accurately appraising and connecting with your prospect/client/investor’s situation, needs, and goals is crucial to the sales process, and will directly affect their ability to understand you. Learn to actively listen, to ask for clarification, to stop talking and answer questions. A caveat to the advice above about preparing talking points is to be prepared to go “off book” to address questions and concerns from the other side of the table. Remember, it’s not about you, it’s about them. If you want their money, you have to give them their due.

It’s not about you. Did we already mention this? It bears repeating. In the post-Madoff world, you’re guilty until proven innocent. Confidence sells, arrogance breeds concern. The days of Masters of the Universe are over, and communicating with clients and prospects alike cannot be considered just a necessary evil, rather it needs to be embraced as a key foundation of doing business. As the latest Credit Suisse Global Manager Survey reported, “Managers and investors are increasingly coming to realize that they need to view each other as long-term partners.”

Make it real. Keep in mind you’re talking to a human being. Be conversational. Talking points are guideposts to a conversation, not canned text to be recited mindlessly. Ironically, the best way to avoid stiffness is to practice and keep practicing. The more you internalize your facts and themes, the more comfortable you’ll be with them, and the more you can make it a natural conversation. Practice with colleagues before you ever set foot in a meeting.

Improper table manners. How you behave verbally and nonverbally makes a lasting impression. Are credibility, professionalism, competence conveyed when you’ve got your head and eyes lowered? When you use verbal graffiti like “um” and “uh”? When you fidget with pens, markers, or notes? These are the least egregious of the many bad habits we’ve seen in meetings.

Proper table manners. How can you convey desirable characteristics like professionalism and competence? Try sitting up straight – not ramrod straight, but relaxed and poised. Maintain eye contact. Speak clearly. Smile once in a while. Make friends.

Maximize your impact. There are further tactics you can employ to get the most out of your meetings. Be aware of your hands: gestures should emphasize your points; flailing about will be distracting to say the least. Project your voice: this expresses confidence and ensures you’ll be heard; try speaking to the back of the room to ensure you’re projecting. Don’t rush: add emphasis with judicious pauses. And most important, communicate with passion. Passion doesn’t simply inform, it persuades.

The capacity to learn, embrace, and execute these recommendations varies from firm to firm and individual to individual. For some it will come naturally, for others it may feel uncomfortable at best, impossible at worst. Regardless of which group you fall into, almost everyone can be helped by professional coaching. It is up to those responsible for the sales process to gauge the capabilities and make certain that everyone’s skills and techniques are optimized. Anything less puts your very business at risk.

To further refine your approach, read more articles on hedge fund marketing or checkout one of our Hedge Fund Knowledge Centers.

Eze Castle will closely monitor these updates and prepare seminars, webinars, and other resources to help you and your fund prepare for regulations. In the meantime, be sure to check out our Best Practices for Hedge Funds Knowledge Center and Privacy Compliance Knowledge Center to help you stay a step ahead!

Where do you fall on this debate? Are hedge funds being victimized or finally being held accountable? Be sure to leave comments for us and let us know where you see Hedge Fund Regulation headed in the coming months and years.

Thanks for reading!

Wendy

Good relationships should be a key goal for any investment manager because they help secure and retain clients. In our previous blog entry on how to win and retain assets, we cited two pillars of relationship building: credibility and rapport. A lack of credibility will give potential hedge fund investors a reason not to do business with your firm. Strong rapport will give them every reason to do business with your firm.

Since investor decisions often hinge on the meeting, the in-person contact that leads them to trust – or not to trust – the hedge fund manager with their money, building credibility when making a presentation is crucial. Today, we’ll outline specific steps to do just that, excerpted from our most recent Strategic Commentary, “It All Comes Down to the Meeting.”

Know your audience. What are the roles of the people you’re meeting with? Their responsibilities, decision-making powers, place in the pecking order? Being familiar with this most basic of data points will not only help you pitch, it will communicate interest and respect. Know their level of sophistication so you can gear your language appropriately. How difficult is a quick Google search before the meeting to discover any relevant issues or unknown (to you, anyway) connections?

Know your goal. What message do you want to get across? Remember, there are tactical messages that are explicit (our operational efficiency has increased, your hedge fund portfolio is now poised to recover losses, etc.) and there are meta messages that are implicit (we are hedge fund professionals who take our business seriously, we are not in panic mode, etc.). Close with a call to action: what is the next step you want them to take?

Be ready to tell your story. Define and rehearse your core message, a concise description of your hedge fund’s value proposition and chief differentiators. Organize your thoughts beforehand to ensure the conversation flows naturally and logically from one topic to the next. The more organized you are, the better the conversation flows, the more they’ll assume you’re an effective manager, owing to what psychologists call “transference.”

Be prepared to respond. Anticipate the questions you’re likely to be asked. What are their specific concerns or interests? A high-net-worth individual will want information or confirmation on very different subjects from a pension fund or a consultant. Put yourself in their shoes – focus on what’s in it for them.

Keep time in mind. Arriving to the meeting on time might not impress anybody – but arriving late will definitely leave a negative impression and erode your credibility right from the start. Confirm the timeframe beforehand, and pace the conversation accordingly. Prioritize your talking points to ensure you hit them in the time allotted. Consideration for someone’s time goes a long way in evincing professionalism and engendering positive feelings.

The capacity to learn, embrace, and execute these recommendations varies from firm to firm and individual to individual. For some it will come naturally, for others it may feel uncomfortable at best, impossible at worst. Regardless of which group you fall into, almost everyone can be helped by professional coaching. It is up to those responsible for the sales process to gauge the capabilities and make certain that everyone’s skills and techniques are optimized. Anything less puts your very business at risk.

Next Tuesday, July 6 we’ll discuss how to build rapport with potential investors.

In the meantime, read more of Eze Castle Integration's articles on hedge fund marketing or checkout one of our Knowledge Centers.

*Photo Credits: Robbert van der Steeg

Not surprisingly, the hot topics of this year’s event included risk management, high frequency trading and cloud computing. A survey by SIFMA and IBM that was released at the conference also found those topics to be the driving forces behind 2010 and 2011 technology spend. The survey of 250 business and IT Wall Street professionals identified that of all regulatory activities, systemic risk was chosen by 55% of respondents to be the largest driver of IT investments. Other key findings from the survey include:

• 90 percent of participants expect to outsource one or more of their processes,
  
• Firms are most likely to outsource compliance reporting and analytics for risk, and
  
• Behind cloud computing, mobile technologies are expected to force significant business and operating model changes.

We’ve seen a consistent increase in cloud computing deployments and are regularly having conversations with firms about why cloud computing is right for many hedge funds. Our hosted IT platform, Eze Virtual Office, is just one example of how a firm can leverage cloud computing to operate off an enterprise caliber infrastructure at a fraction of the cost.

At SIFMA our partner, BNY ConvergEx, announced that Eze Castle Integration is certified to host and deliver Eze OMS as an ASP solution to the hedge fund and asset management industry. We currently host Eze OMS for a number of hedge funds and this formal external announcement is further proof that the industry is heading in the direction of hosted IT and applications. According to BNY ConvergEx, the benefits of going with fully outsourced IT management of the Eze OMS environment include:

• Allowing clients to focus their full attention on business operations rather than IT concerns,
  
• Access to robust business continuity options, including high availability and disaster recovery, and
  
• Achieving the same level of flexibility with market data and FIX network providers as is available with the traditional delivery model.

On the high frequency trading front, we found Aite Analyst Adam Honore’s panel with IBM on “Addressing Tomorrow's Trading Opportunities Today” top notch and the crowd it drew was proof of that. Luckily that panel snagged the 9:00 a.m. spot because come 10:00 a.m. the USA v/s England game cleared the sessions as attendees flocked to the closest TVs. Of course, to capitalize on the crowds, vendors rushed to stream the game at their booths – bye bye software demos, hello World Cup.

All-in-all SIFMA 2010 showed the positive signs of recovery we’re seeing across the financial services market. Not ready to leave SIFMA 2010 behind yet (we understand)? Checkout our pre-show predictions on what would be HOT and see if we got them right.

Looking forward to seeing everyone in 2011!

The investment management business is more fiercely competitive than ever before, making it difficult to de-commoditize and stand out from the pack. Regardless of a manager’s track record, pedigree, or organizational excellence, investor decisions often hinge on the meeting, the in-person contact that leads them to trust – or not to trust – the manager with their money. Yet managers commonly minimize the importance of meetings, and are thus often either ill-prepared or ill-behaved.

What’s more, many non-sales personnel lack the natural presentation skills or requisite experience to successfully navigate a meeting. Clearly, ineffective prospect meetings can be an obstacle to winning assets. Yet that’s not all. Poor client service meetings are a business hazard as well, since they can add to client dissatisfaction and the cost of lost assets is so great.

So what’s a manager to do? Our most recent Strategic Commentary, “It All Comes Down to the Meeting,” takes a look at the problem and offers specific solutions. The first thing is to recognize reality: any company that needs to solicit clients – and keep them once attained – is a sales organization, regardless of the product or service offered. That makes every hedge fund, wealth manager and service provider a sales organization. And during a meeting with a potential or current client, it makes everyone involved a salesperson.

As salespeople, we must take to heart that great adage of sales, “People do business with people they know, like, and trust.” In other words, good relationships are the goal because they help secure and retain clients. This applies across the investment management landscape. A recent Preqin survey of family offices, for instance, found an increasing number insisting on “a close relationship and good communications with fund managers.”

Building relationships is a process, of course, not an event. In our experience, there are two pillars of relationship building: credibility and rapport. A lack of credibility will give potential investors a reason not to do business with you. Strong rapport will give them every reason to do business with you. We outline specific steps to achieve these goals in our Strategic Commentary (which you can find on our website, www.bkcomgroup.com), and will provide them in future blog entries here. Stay tuned!

Coming up next Tuesday (6/29): Part II - How to Build Credibility with Investors Through In-Person Meetings

Hedge Fund Marketing Resources:

• Tips to Attract Hedge Fund Investors: Marketing, Communications and CRM
• Hedge Fund Marketing Kit (featuring whitepapers, webcasts and more!)

What is Cloud Computing?

Although cloud computing has become a buzz word in the IT industry, many businesses and financial firms aren’t entirely confident in what it is and how it can benefit them. In basic terms, cloud computing is the implementation of a third party to host a service or software application in a web-based repository. Through the use of a cloud, a firm no longer needs to purchase and maintain an exorbitant infrastructure.

I recently sat down with Matt Bretan, Director of Strategic Consulting at Eze Castle Integration, to further highlight how we are addressing our clients’ unique needs with cloud computing. Matt explained that with the cloud, we are able to level the playing field for smaller hedge funds and investment management firms by opening up otherwise costly IT solutions. The cloud also offers increased flexibility and grants rapid access to leading technology, updates and applications with minimal upfront costs. Traditionally, setting up a firm could take days. With the cloud, firms only need Internet access and can be set up in a matter of hours with seamless access to data and applications.

Eze Castle Integration helps make this possible through its Eze Virtual Office (EVO), which is a cloud hosted solution that bundles business applications with a high-performance infrastructure. With EVO, clients just pay for the services used.

Let’s take a closer look at why firms are using the cloud.

Cost Savings

With a cloud, there is no need to purchase expensive infrastructure that will also require additional space. Cities like New York and San Francisco tack on massive costs with the aggressive price-per-square-foot of real estate. With a third-party host, there is no need to crowd multiple servers into Communications (Comm.) rooms. This is particularly attractive to start-up funds that lack the upfront capital to set up their own infrastructure and the staff to maintain the equipment.

Flexibility/Scalability

By adopting the cloud, firms are only obligated to pay for the resources they will need. This benefit certainly trumps the traditional system of purchasing advanced storage devices and servers that are tied to fixed costs. By operating on a utility basis, firms are able to adopt a pay-as-go service which is flexible and scalable to their specific needs.

Furthermore, the cloud opens advanced mobility features to many firms. This allows employees to work remotely from home or while traveling, freeing them from their desks during business hours.

Another distinct advantage of cloud computing is virtualization. The demand for additional storage, RAM and space can be easily met. With a traditional infrastructure, there are middle men requiring quotes, equipment to be ordered/delivered, etc. Additionally, the cloud computing system supports multi-tenancy, which increases utilization and efficiency by allowing multiple users to share resources.

Reduced Maintenance

While traditional infrastructure models place the responsibility of managing IT needs to the firm, the cloud alleviates this by placing the responsibility on the shoulders of the third-party provider. Hardware installations, constant server updates and other computing issues are tasked off-site, allowing the firm to focus on business-critical matters. Beyond the savings on equipment, additional capital is no longer needed to train and hire IT staff. Matt noted that while this is extremely beneficial to smaller firms, larger companies are now adopting the cloud for similar cost-saving strategies. Beyond the relatively inexpensive structure, the cloud can grow with your business.

Green Benefits

By implementing the Internet as a gateway to technology, a firm can significantly decrease their impact on the environment. Resources such as power and cooling for supply equipment can be astronomical to maintain at peak performance. By outsourcing with cloud computing, firms are able to save all-around by having the host-party consolidate and absorb the costs with custom data centers which are designed for better efficiency.

Addressing Concerns & Challenges

Regardless of the benefits, cloud computing is still being met with resistance from the financial industry. With apprehensions about security breaches, increased standards (ie. recently passed MA 201 CMR 17) and overall performance, firms tend to discount the cloud model. Matt addresses this by explaining that the cloud is a proven technology that is becoming more secure. The proof is in government agencies and larger companies like IBM beginning to adopt the cloud.

Given the sensitivity of data in financial firms, it is understandable that confidence in a virtual system may falter. However, third-party hosts are well equipped to meet the standards in:

• Data protection measures;
• Firewalls;
• Security checkpoints; and
• Passwords.

Moreover, Gartner Inc. highlights the increase in spending on cloud computing, despite the overall decrease in IT spending reported in 2009. Gartner noted that the revenue is set to exceed $56 billion, which is a 21 percent increase from 2008 (Wall Street Journal, 10/21/09).

Is the Cloud Right For Your Firm?

Cloud computing is a proven-safe, environmentally friendly and cost-effective technology. Depending on whether your firm’s priorities lean towards cost, maintenance or efficiency, the cloud may or may not be the best option to host your technology. Firms should adopt the best system based on the resources they have available, including capital, space, staff size and other requirements.

Want to Learn More?

Give Matt Bretan a call at 212-954-0738 or email him at mbretan [at] eci.com.

Or check-out the managed services Eze Castle Integration offers via our Eze Cloud. We've got a virtual office platform, hosted application platform and CRM application. We offer colocation services too.

*Photo Credits: Blog Experiencia3 and D Sharon Pruitt

As you prepare to launch your new hedge fund, you will face some overwhelming choices in the area of hedge fund real estate. Will you run your hedge fund from your home office or a hedge fund hotel? Will you sublease space? Will you bet on a prestigious address as a key to future success? As you struggle to answer these questions, you must consider your expected growth, your economic resources and your investors’ needs.

First, determine your hedge fund’s real estate needs.

As you begin to consider your real estate options, keep in mind how you would like investors to perceive your office space and how the workflow of your location will affect their perceptions. If you mainly meet with clients in their offices or homes, this is less of a concern. If, however, you wish to host investors in your hedge fund offices, you should consider more than just rudimentary personal working space including:

• Offices for professional staff
• Cubicles for support and administrative staff
• Reception area
• Conference room(s)
• Kitchen/common area(s)
• Supply/maintenance space

Once you know which of the above items are on your list of needs, you can start to determine the pros and cons of your hedge fund real estate options.

Option #1: An Executive Suite (aka Hedge Fund Hotel)

There are numerous advantages to this option. Long-term commercial leases typically require at least three-to-five-year commitments. Agreements at executive suites, also known as managed suites or hedge fund hotels, usually offer six-to-12-month leases. This can be attractive to the new hedge fund manager eager to gauge his or her success before locking into a major financial agreement.

With a hedge fund executive suite, you can avoid investing directly in office equipment, technology packages and trained administrative support; these can be purchased in a standardized package with some flexibility in customizing the services you wish to use. The executive suite also offers the new firm an entry to prime real estate areas, which might otherwise be cost prohibitive.

There are downsides to this option, however. Often, executive suites come with a number of hidden costs and fees written into the leasing contract, particularly in the event of a premature breach of the lease agreement. Management may also adjust rates according to a nonnegotiable schedule.

The cost of a hedge fund hotel executive suite for one professional and one administrative staff member can run between $800 and $1,200 per month, depending on its location.

You can expect to be charged separately for use of the following:

• Reception and conference rooms
• Kitchen and lounge areas
• Listing in lobby directory
• Cleaning services
• Mailroom services, copying and fax transmissions
• Dedicated receptionist or phone answering service
• Technology such as broadband, video conferencing, support staff

Option #2: A Sublease

You can get many of the benefits of an executive suite with the chance for more flexible agreements when you sublease from an existing business. When you choose this option, you should seek out not only a financially agreeable situation, but also one with a business that shares some characteristics or complementary services with your firm. This provides an opportunity for your nascent business to align itself with a more established “partner” that could direct clients your way.

Benefits of subleasing for a hedge fund can include:

• Shared common areas such as meeting rooms, kitchens and reception areas
• Shared administrative and support staff with the other business
• Lower overhead expenses and no installation fees for utilities, phone or Internet services
• Costs of subleasing agreements vary greatly based on location. However, you can expect to pay the price per-square-foot estimate of the entire office space, with either a pro rata charge for use of common spaces or a fixed-fee arrangement.

Option #3: Leasing Commercial Space

This option gives your hedge fund the greatest flexibility, but also the greatest commitment. These are typically multi-year leases and are the most expensive of the three options.
Commercial real estate advisors can help you navigate highly customizable leasing contracts or you can contract directly with a landlord. If you choose the latter, have the paperwork reviewed by an attorney or real estate specialist and familiarize yourself with the terms typically used in these contracts, including:

• Permitted use of the premises – A broad range of uses allows you to be flexible in how you use your office space.
  
• Lease term – Commercial landlords will usually offer either discounts or some concessions in exchange for longer lease terms.
  
• Rent escalations – Usually, lease agreements include percentage increases linked to the Consumer Price Index or another real estate index. However, if you are considering a lease of three years or more, you may be able to defer rent escalations for the first two years. Another option is to attempt to negotiate a cap on the amount of annual rent increase.
• Tenant improvements – One of the primary benefits of leasing your own space is the ability to adapt its look. While most commercial leases prohibit alterations without the landlord’s consent, you can request a clause that permits you to make minor improvements that are nonstructural in nature without having to secure such approvals.
  
• Repairs, improvements and replacements – If you are planning any customization of the office space, make sure to spend some time discussing this clause with the landlord. It generally states that you agree to return the premises to their original state.
  
• Renewal options – This clause is your opportunity to renew your rent at a fixed, predetermined price, rather than “fair market” value.
  
• Right of first refusal or first offer for additional space – This is particularly important for young firms that may expect growth in their initial years. This clause provides the right (but not the obligation) to rent any office space that becomes available before the landlord offers it to any other parties.
  
• Personal lease guarantees – Some landlords may want to include a clause in the lease agreement that makes the business owner personally liable for any damages or overdue rent, even if the tenant is a corporation or another type of business entity.
  
• Work letter – This document describes standard fixtures, upgrades and repairs for which your landlord is willing to pay. If you plan on updating the space, the work letter may include information about whether you or the landlord bears the cost of the improvements.

Costs for this option vary greatly based on location.

As you decide on one of the above real estate options, make sure your choice represents realistic financial considerations and gives you enough flexibility to adapt as your business needs change.

Finally, Resources...

Eze Castle Integration’s team has deep experience in helping clients evaluate real estate options to determine if they meet the client’s current and future needs. We also know the questions to ask when you're checking out real estate – contact us for assistance.

Our Eze Managed Suites are another great option for clients seeking temperary space in a hedge fund hotel.

Finally, if you're launching a hedge fund be sure to download our Hedge Fund Launch Kit – it is getting rave reviews.

Cloud Computing

You don't have to be a tech geek to have heard about cloud computing - these days, anyone using the internet (and isn't that everyone?!?) is most likely using cloud computing in one form or another. Popularized by Software as a Service (SaaS) sites like Salesforce.com or Google Docs, cloud computing offers products and services to the end user in an economical (sometimes free!) and easily accessible format. Most recently, software companies have begun offering their enterprise-level solution through the cloud to businesses. The advantages are both immediate and long-term: no need to purchase expensive servers or manage and maintain them over time, and updates are sent seamlessly through the cloud directly to the end user. In the past these solutions were extremely attractive for very large institutions, particularly hospitals and universities. However, cloud computing has become more and more attractive to businesses of all sizes who require professional level services - even if they have only a handful of employees.

Here at Eze Castle, our products teams have carefully evaluated our offerings which would be a good fit for cloud computing. Through our suite of Managed Services - including Eze Virtual Office, Eze Managed Suites, Eze CRM, and Eze DR, we can provide easy access to leading hedge fund technology and applications. Managed Services clients can depend on professional management with minimal upfront costs, scalability, and positive environmental contributions.

Learn more about how we may be able to help your firm cut costs even while upgrading your systems:

• Eze Castle Debuts Hosted IT for Hedge Funds
• Eze Castle Rolls Out Hosted CRM for Hedge Funds
• Cloud Computing: Why It Might Be Right For Your Firm

So, how does this all tie into SIFMA, you ask? Why not check out my first three HOT PICKS?

Cloud Computing - Toward a Financial Services Marketplace: It’s been a challenging time for the finance industry, changes in regulation, employment trends, risk assessment, innovation, the use of financial instruments, corporate policy, are all changing the landscape and the nature of the services provided by Buy Side, Sell Side and Service Providers firms. Microsoft will share its view on the future of global Capital Markets services and how technology is evolving to enable a cloud based infrastructure that will extend beyond the pure computing power towards supporting financial and analytic services in a marketplace-like type environment.

Debunking Cloud Security Myths: Myths with respect to cloud security range from “it is impossible” to “it can be done using this checklist.” This panel will explore innovative cloud management and engineering strategies. Examples of discussion topics will be network-friendly cloud security policies, reusable virtual components, and ubiquitous identity and access.

Market Data From the Clouds: Cloud computing promises to slash technology development costs for applications that use market data while accelerating development time, boosting performance and ensuring scalability. But where are the pitfalls? How should you navigate around them? And how can you be sure your department and your customers will realize the benefits you expect from Cloud Computing? In short, how is Cloud Computing already changing the landscape of market data delivery, and how can you not just survive the change, but thrive from it? Join us for a thought provoking panel exploring answers to these questions and more. Hear about the real world experiences of three firms who have undertaken major Cloud Computing initiatives.

Business Continuity Planning

The right disaster recovery solution can protect your hedge fund’s data and reputation, instill confidence with investors and deliver a competitive advantage. It is often a primary reason that a new prospect or client will contact Eze Castle. However, there is more to your firm's security than just protecting data - without the right procedure in place to protect your company's people, operations, and processes, your DR plan can fall short. Our proven BCP Methodology helps minimize the uncertainty of potential business disruptions by creating a framework to maintain and recover business processes should a disruption occur. Today, many hedge fund investors view a Business Continuity Plan as a prerequisite to capital allocation.

Make sure you download and read these free resources at ECI's Disaster Recovery & Business Continuity Planning Knowledge Center before heading into our next two HOT PICKS!

Next Generation Business Continuity - New Paradigm or Same Old Same Old? Corporate living wills, funeral plans, no it's not life insurance. These are terms BCP professionals will hear much more about in the near future. Climate change, will it have any impact on business continuity planning? Major automotive recalls, sports stars’ with tarnished images, could your firm survive a reputation meltdown? We are seeing massive social, political, cultural and climatic changes all around us. Social networks like Twitter and Facebook provide instant news anywhere in the world. And even when you think that everything that could be invented has been, the iPad appears. So how does business continuity factor into these massive changes? Where does BCM go from here? Does anyone care? Maybe it's time to start thinking of business continuity outside the box. Come hear a distinguished panel discuss issues not previously thought of as part of BCP or BCM.

Coordinating BCP and Cyber Event Response: Cyber events are not only becoming more frequent but there is a growing possibility that they may disrupt business functions. When an organization must respond to an actual business disruption caused by a cyber event, Business Continuity and Cyber Security can have connecting responsibilities. This session explores the link between cyber event response and business continuity response and highlights how the business continuity and cyber security groups can collaborate to enhance the recovery process.

You should be well prepared now for SIFMA - we look forward to hearing from you in the Comments Section below. Be sure to check in with us after the event too.

Thanks for reading!

Wendy

We really hope you'll stop by for some fun and tech talk at Booth 1861!
Exhibit Hall admission is FREE for all conference registrants and for those who register for the EXHIBIT ONLY pass online. Free EXHIBIT HALL ONLY admission offer expires on Monday, June 21, 2010, at Noon.
SIFMA Financial Services Technology Expo
June 22-24, 2010
Hilton New York
Make sure you check out www.sifma.org/techexpo2010 for complete details about this always exciting event!

At this point in your launch process, you likely have a lot of information about what you should do. Knowing what you should not do is equally as important. As promised, part three of our series will cover several common technology mistakes that new funds make and how you can avoid them. If you find yourself stumbling down one of the following paths, GO BACK.

1. You want the perfect solution, and you will not rest until you find it. Your business life would certainly be easier if you could buy a solution that meets 100 percent if your technology requirements. Undoubtedly, you will run into a vendor or two who will promise you such a thing. However, unless your business has an extremely narrow focus, it is unlikely that these promises will materialize. The truth is, a successful approach to technology planning usually means negotiating, purchasing and deploying systems from multiple vendors and service providers. And you can expect that the more complicated your business, the more technology providers you will require to fully meet your needs. Be wary of the small, new firms offering all-in-one solutions. Will they be around in the years ahead to stand behind the promises they make today?
   
2. You are so focused on today's to-do list, you have not considered the future beyond your launch. Today, you have a new fund - a young company with what are perhaps modest needs. If you select your technology for the business you have today, you will likely find yourself remaking these decisions within three to five years. Before you commit to any technology solutions, envision how your practice will look in the long term. An important question to consider today is whether the decisions you make for your firm pre-launch will support your business as it grows.
   
3. You haven't fully considered the multiple roles technology play in your current work environment. In your current or previous working life, perhaps you had the luxury of an IT department or professional who made sure technology did all the jobs you needed it to. You didn't have to think about solutions in the way you do right now. Consider the work you do or did as an employee and take note of which systems supported that work. You will need email, phones, quote feeds and other technological support in your new hedge fund, and perhaps, additional systems you did not encounter in your previous situation.
   
4. You believe you can manage a new hedge fund AND all of its technology needs on your own. If professional tech support is not on your list of needs before launching your fund, add it now. Your new firm will require IT assistance to build servers, manage networks and handle day-to-day needs. If you prefer, you can outsource project-related work to consultants or contractors, and there are third-party providers with whom you could contract for ongoing maintenance. However, before selecting an outside option, consider hiring a full-time professional.
   
5. You're tempted to decline the training options on your IT systems. Most vendors offer some sort of training to accompany their products, and you should take them up on those offers. Once you've rolled out your new systems, you need to learn how to use them. Trust the vendors' professional services team to explain all the quirks in the products that were likely smoothed over by their sales staff. This training exists to enable you to maximize your investment. Additionally, ask vendors about user groups, which can be invaluable resources for easing frustration as you adopt multiple umfamiliar systems.

It’s often easier to avoid these pitfalls when you know they exist. You can also use this technology checklist as a resource during your decision-making process.

Coming up on 6/15: Be sure to check in with us next Tuesday, June 15th for the fourth and final installment of our series on Launching a Hedge Fund. Part four will cover selecting real estate for your hedge fund.

In the meantime, visit our Launching a Hedge Fund Knowledge Center, or contact our team to discuss your launch.

High Frequency Trading
In the last couple of years, we started hearing quite a bit of chatter about High Frequency and Algorithmic Trading. Not content to just read headlines, we set out to make them. And with that, we organized an event last year in Boston focused on High Frequency & Algorithmic Trading, where our panel of expert speakers reviewing the topics of advanced execution strategies, sponsored access, connectivity alternatives, proximity solutions and real time risk management. We delved into how to implement both a data center infrastructure and a financial ecosystem to effectively support algorithmic trading and low latency trading strategies.

Since then, Eze Castle has been interviewed several times to discuss the complex infrastructure needs to consider when implementing this kind of strategy. Before you head to SIFMA, read up on HFT in our sizeable News section on www.eci.com.

Check out:

• How to Incubate High Frequency Traders
• This interview with Automated Trader; and
• An article with Securities Industry News: Budgeting for Latency: If I Shave a Microsecond, Will I See a 10X Profit?

So with that, my first two HOT PICKS for SIFMA panels are:

High-Performance Trading Myth Busting will examine fact vs. fiction in the world of high performance trading in today’s global financial markets with a panel of industry leaders. Topics include: Understanding “real latency”, the true impact of packet loss in HFT and the visibility you must have to optimize your environment.

Addressing Tomorrow's Trading Opportunities Today - Managing Complexity, Achieving Agility: In recent research on both quantitative and high frequency trading, Aite Group found most firms were planning a 2010 move into additional asset classes and/or new geographies. In this session several market participants will debate how technologists can be ready for the next market opportunity for their firm, while at the same time managing data and risk in increasingly fragmented markets, addressing growing regulatory reporting demands, and responding to client expectations.

Privacy Compliance

You may have already heard or read about our Privacy Compliance offering, which we originally designed with Massachusetts privacy laws in mind, as they are currently the most comprehensive and strict regulations in the country. However, the regulations affect more than just those firms who are in Massachusetts - if your fund holds MA residents' personally identifiable information, you are also required to comply. Check out this Mass High Tech article to learn more. There has been talk of regulations like this being adopted in other states, and possibly at the federal level as well --- making this a hot topic that isn't going away any time soon.

In fact, there are two panels planned at SIFMA which will focus on Business Continuity Planning and Privacy and they've made our HOT PICKS list:

Advanced Persistence Threats - Solutions for a New Battlefield: This session will deal with the very real challenges posed by the Advanced Persistent Threat. Panelists include members of the financial industry, law enforcement and the legal community. Each brings a different perspective on how to identify, combat and remediate against the APT. We’ll also discuss various tools, techniques, and practices you can employ to strengthen your organization’s security posture in an ever-changing landscape.

Coordinating BCP and Cyber Event Response: Cyber events are not only becoming more frequent but there is a growing possibility that they may disrupt business functions. When an organization must respond to an actual business disruption caused by a cyber event, Business Continuity and Cyber Security can have connecting responsibilities. This session explores the link between cyber event response and business continuity response and highlights how the business continuity and cyber security groups can collaborate to enhance the recovery process.

To review the entire agenda and plan out your time at SIFMA, please follow this link and check out the event information below. We at Eze Castle are proud and excited to be sponsoring this event again. We are confident that our solutions are aligned with these hot topics and we eagerly anticipate learning more from our peers on how to service hedge funds and alternative investment firms during this time of economic uncertainty. We look forward to reporting back to you after SIFMA with our take on the event. In the meantime, check in with Hedge IT again next Thursday for my next two HOT PICKS at SIFMA 2010: Cloud Computing and Business Continuity Planning.

‘Til then!

Wendy

We really hope you'll stop by for some fun and tech talk at Booth 1861!
Exhibit Hall admission is FREE for all conference registrants and for those who register for the EXHIBIT ONLY pass online. Free EXHIBIT HALL ONLY admission offer expires on Monday, June 21, 2010, at Noon.
SIFMA Financial Services Technology Expo
June 22-24, 2010
Hilton New York
Make sure you check out www.sifma.org/techexpo2010 for complete details about this always exciting event!

* photo credits: http://www.flickr.com/photos/paloetic/ and http://www.flickr.com/photos/alancleaver/

Today, we’ll look at the critical areas of data protection, colocation and archiving.

But before we dive into those three topics we'd like to share our new presentation on the Six Considerations for Launching a Hedge Fund. Here you go.

Data Protection

Investors in today’s marketplace demand that hedge funds demonstrate their ability to maintain operations regardless of disasters or other external events. You must protect your hedge fund's data with a business continuity plan and disaster recovery system even before you begin working with clients.

So, what's the difference between a business continuity plan and a disaster recovery system? The two are complementary, but each fills an individual hedge fund data protection need.

Your business continuity plan should answer some important questions about your business, including:

• Which employees are in decision-making roles?
  
• How will you notify them in the event of a disaster?
  
• Which processes are most critical to your firm?
  
• How will you continue to operate if your location is compromised?

Your disaster recovery plan will detail all the steps you took to implement your technology and physical locations in the event that you need to recover essential applications, such as e-mail, trading data, voice services, etc.

Developing these two data protection processes properly might take as long as three months if you do it right. When you’re done, you should have plans that identify your essential processes and personnel and address all the elements necessary to resurrecting your business after an unexpected disruption. As you write your plans, be aware of some pitfalls:

• A hedge fund disaster recovery site has many requirements including redundant power, HVAC systems, fire suppression systems and diesel generators; if your plan is to locate your DR site at an employee's home, you may need a new plan.
  
• If your disaster recovery site is in the same area as your primary location, you could find yourself without access to your critical systems in the event of regional disasters.
  
• Relying solely on physical tape backup is asking for trouble. Tape does not equal disaster recovery. Part of your plan should include the daily electronic replication of essential materials to an off-site location.

Colocation

One answer to your data protection questions is colocation. Colocation centers host your hardware and software off-site from your firm and provide more security than you might otherwise be able to access. If creating business continuity and disaster recovery plans makes you nervous, selecting a colocation service will ease your concerns.

By employing colocation, you can check-off a number of technology-related items essential for launching your hedge fund, including:

• Ample bandwidth
  
• Extensive, round-the-clock security, including surveillance and monitoring
  
• Adequate power source
  
• Regulated heat and humidity required for housing hardware
  
• Data redundancy services
  
• Ability to quickly and painlessly expand storage capabilities

If you decide colocation is the right option for your firm, choose a host that can install redundant connections and function with your current and potential applications. Keep in mind that location matters; every 60 miles between your firm and your data center translates to a millisecond of application response time. Colocation costs range from $1,800 to $3,500 per month depending on geographic location and your space requirements.

Archiving

Finally, you cannot forget about e-mail and instant message (IM) archiving; these capabilities are vital to complying with the many rules and regulations your hedge fund is required to meet. Under the Federal Rules of Civil Procedure, you are responsible for supplying electronically stored information upon request, including documents, spreadsheets, PDFs, e-mail, IMs and Bloomberg mail. The law prescribes a certain storage time for e-mail and IMs, and you should keep these messages in WORM (Write Once, Read Many) format.

You’ll also need a way to search files quickly so that you can meet any requests for materials in a timely manner. An offsite server accessible via the Internet is your best option for this type of data storage.

Your Pre-launch To-Do List

We’ve given you a lot to consider as you plan for the technology needs of your hedge fund. We’ll wrap up with a short checklist to help you keep important tasks top of mind.

Stay tuned for part three of the series called, “Common Technology Mistakes and How to Avoid Them,” next Tuesday.

In the meantime, be sure to visit our Hedge Fund Launch Knowledge Center.

To many, high frequency trading remains a misunderstood and often unfairly-attacked subset of the investment industry. With this in mind, we’ve decided to take a closer look at what high frequency trading is and what the future may hold for this practice.

What is High Frequency Trading?

High frequency trading can be defined as the use of algorithm-based, quantitative-driven strategies to execute strategies with a holding time of less than one day. In other words, firms are trading in a rapid manner, while cutting holding fees and subsequently increasing profit margins.

More and more, traders are employing sophisticated computer technologies that allow them to quickly identify and execute pre-developed strategies across markets and move from position to position in just milliseconds. Furthermore, some high frequency trading shops are able to employ a strategy that relies on the ability to see certain orders a few milliseconds before the rest of the market. Firms use these “flash orders” to create micro-markets around a specific stock across exchanges.

The Major Players

There is a common perception that high frequency trading is reserved for the biggest and best investment firms – those who have virtually unlimited capital and resources. This assumption, however, is largely unfounded. While there are upfront capital requirements associated with high frequency trading, including technology, these infrastructure and applications costs will decrease over time. Alternatively, colocation offers firms a low-cost alternative to housing and maintaining their own infrastructure. Earlier this year, Securities Industry News took a closer look at how some firms are able to get the incubation and technology they need for high frequency trading.

Trends show that the majority of high frequency trading firms are located in New York, Chicago and London at the moment, while other regions continue to show continued growth, particularly Singapore, Sydney (AUS), South America and South Africa.

Strategy & Risk Management

When it comes to high frequency trading, there is no more important element for a firm than its strategy. Because high frequency trading is based heavily on speed, strategies are constantly changing, and firms should ideally be changing their strategies every few weeks to stay ahead of the competition.

One element of trading that has yet to be fully adopted is risk management. An effective risk management system should monitor a trader’s activity in real time and be able to identify when a trade exceeds risk boundaries set by the trader. (The now infamous stock market collapse on May 6, 2010 would have benefitted from the implementation of a more robust risk management system.)

Pre-trade risk management is affordable and easily available. So why aren’t high frequency trading firms utilizing it? The easy answer is that it takes time. Traders only have milliseconds to execute their strategies, but a risk management system can often add latency when it computes the firm’s risk profile. Eventually, traders may be forced to invest in risk controls as the investors and regulatory bodies like the SEC push for greater transparency across the markets.

What Does the Future Hold?

In the wake of the country’s economic meltdown and more recent stock market events, the SEC and other regulatory bodies have taken steps to better regulate the financial industry, including placing restrictions on high frequency trading.

Last year, the SEC proposed a ban on sponsored access, a process through which brokers give their level of access to high-speed traders, allowing them to buy and sell stocks without identifying themselves. The SEC’s fear is that such anonymous trading threatens market stability. But high frequency trading firms that use sponsored access maintain that it adds liquidity to the market.

There is still much debate over whether high frequency trading should be regulated, and there will likely continue to be until regulators like the SEC can clearly define what it is and how it should be monitored.

If you would like more information on the technologies needed to power high frequency trading, please contact us.

Resources:

• Whitepaper: High Frequency Trading: Extended version of this blog post (4 pages)
• Video: Automated Trader Interview with Matt Bretan, Senior Business Consultant, Eze Castle Integration

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.

Infrastructure security

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.

Telecommunications/Voice services

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.

Internet
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.

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.

Voice
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.

Market Data
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. Next Thursday, we’ll discuss what you need to know about setting up your data protection services and archiving systems, both mission-critical technology concerns for any hedge fund.

Until then, read more about our hedge fund startup services or contact our team to discuss you hedge fund launch.

Network

• Ensure your DR provider has redundant network equipment
• Consider using multiple network providers; Some colocation facilities have over 30 network providers for maximum redundancy

Power

• There should be multiple sources, ideally sourced from different power grids
• Are there backup power generators?
• Is there onsite fuel to run those generators? You’ll want onsite fuel that can last a few weeks.

Air Conditioning

• Servers and other systems generate a significant amount of heat, making backup cooling systems a key component of a disaster recovery facility

Security

• For data and telecommunications, your disaster recovery partner should deploy an uncompromisingly high level of security through technologies such as:
  --Virtual private networks (VPNs)
  --Virtual local area networks (LANs)
  --Firewalls and more
• Physical security is also important. Ensure the provider has 24-hour manned security at the DR facility as well as cameras and digital monitoring.

Redundant Systems

• Whether it uses servers, routers or T1 lines, your remote or hot site provider should have “N+1” availability, a system configuration in which multiple components have at least one independent backup component to ensure system functionality continues in the event of a system failure

Storage

• The best deployments use Redundant Array of Independent Disks (RAID) methodologies to “stripe” data across systems for performance and data mirroring for improved protections and availability. Striping means that all available hard drives are combined into a single, large virtual file system, with the blocks of the file system arrayed so that they are spread evenly across all the drives

Application Software

• Ideally, your remote-site provider can accommodate multiple strategies, including redundancy, clustering, load balancing and warm standby (in which the application is loaded, but not running).

We know a lot going into implementing and maintaining a disaster recovery system, so we created this handy Disaster Recovery Guide.

You can also read our other posts on disaster recovery here: http://www.eci.com/blog/categories/Disaster_Recovery.html

Finally, contact us to speak with one our experts about our Eze Disaster Recovery Services.

Our esteemed panel provided a lively discussion of the impact of new regulations, the FSA’s raids and crackdowns on insider dealings and investors' due diligence processes. However, there was only so much that could be covered in an hour, so we’ve pulled together resources to help provide clarity on the regulatory landscape in the United Kingdom.

Let’s start at the top. Dechert created this 11-page Overview of the Financial Services Act 2010 report, which provides an introduction to the FS Bill, key provisions in the Bill and details on the Financial Services Compensation Scheme (FSCS) changes. The report highlights the following key changes in the FS Bill:

• Consumer protection
• Financial stability
• Enhanced FSA powers
• Enhanced Treasury powers
• Extending the FSCS
• Banking Act 2009

Earlier this year Laven Partners published a presentation on The Future of the Alternative Investment Industry Under New Regulation. This report explores:

• Overcoming regulatory fears and capitalizing on opportunities
• Self-regulation versus external regulation
• What the industry needs to do to profit from regulation of the sector
• How the hedge fund industry can prepare for compliance

Another Laven Partners report looks at Considerations for Moving a Hedge Fund to Switzerland.

Last but not least Eze Castle Integration along with Pershing Prime Services has created a comprehensive report on Establishing a Business Continuity and Disaster Recovery Plan, which are key components to achieve compliance with UK and US hedge fund regulations.

Come back to Hedge IT on Thursday for more tips on disaster recovery. Our next post will be focusing on the infrastructure checklist for DR.

Begin by evaluating your hedge fund’s needs:

• When would you most likely need to access the site?
• How many employees do you have?
• Is it cost-effective to book a seat at a hot site for each employee?
• In the event of a disaster, does each employee have remote locations from which they can work?
• Is it crucial for everyone to work side-by-side?

With a remote office, you do not pay for office, real estate, or telecommunications overhead because your employees access the remote disaster recovery site from their preferred remote location such as their homes or one of your branch offices. Instead of worrying about competing with other hot site clients for limited space and resources, you can access IT resources that are dedicated to the firm and are housed and professionally managed at the remote site.

The hot site includes real estate with separate offices, cubes, desks, workstations, laptops and other office resources and infrastructure (e.g., phones, copying machines or printers) that people can use to continue working much as they did, pre-disaster, in the fund’s production environment. For a hot site to be most useful, your staff will need to be able to access it quickly. That means that it should be located within reasonable proximity of your primary location – not so close that it might be affected by a local disaster, but not so far that it is inconvenient for your employees to reach.

In your selection process, consider the following factors: infrastructure, security, and testing and maintenance.

Infrastructure: The remote or hot site must have multiple levels of redundancy designed and built into every aspect of the facility. We have prepared a quick infrastructure checklist to help in your planning.

Security: From a facilities standpoint, you want your secondary disaster recovery site to have an even higher standard of physical security than your production environment or primary data center, as the disaster recovery site may experience a constant flow of people unaffiliated with your firm. Ensure the site is set up with locked cabinets, cages, and rooms housing your equipment. There should also be human security, including guards, monitoring video cameras, patrolling and managing visitor logs. Biometric security is always a great idea. And finally, ask about perimeter and monitoring security.

Maintenance: A remote site provides a more focused and efficient set of services that may be more appropriate for a hedge fund. This model provides advantages, including lower cost, assured access to dedicated IT resources, and greater convenience for employees.

Finally, an effective disaster recovery plan includes contingencies for multiple types of outages, so locking your employees into meeting at, or working from, one location can reduce the plan’s effectiveness. Keep in mind --- adaptability and flexibility are keys to any successful plan. Eze Castle can simplify this process for you.

Visit our DR Knowledge Center to learn how! The Disaster Recovery Knowledge Center includes:

• Meeting the Institutional Investor's New Requirement: BCP & DR (1 hour video)
• Guidebook to Establishing a Business Continuity & Disaster Recovery Plan (20-pages)

You can also read our other posts on disaster recovery here: http://www.eci.com/blog/categories/Disaster_Recovery.html

Photo credits: National Park Service, Photo by D.W. Peterson

For many hedge funds, disaster recovery remains an Achilles’ heel – an expensive and sometimes distracting proposition. But planning for and taking the right steps to develop a comprehensive IT disaster recovery plan that is customized for your firm will allow you to be best prepared for unexpected events.

What factors should you take into consideration when establishing your disaster recovery plan? Here are a few to get you started:

Capital Costs: What is the right economic choice?

When it comes to disaster recovery for hedge funds, specific requirements for each firm will differ. Your firm’s preparations for disaster recovery should reflect your underlying business requirements, including strategy (long-only, high frequency, etc.) which will directly shape your budget decisions.

Hardware, software and other necessary disaster recovery requisites can be costly for hedge funds, particularly small firms looking for minimal capital expenditures. In some cases, firms may select outsourcing disaster recovery to a qualified managed service provider. Firms should conduct a thorough evaluation to determine whether it makes sense to outsource disaster recovery or to manage disaster recovery in-house.

Regardless of the approach, a hedge fund disaster recovery strategy should include a “hot” or remote site that replicates your current IT environment and enables your employees to stay operational during a disaster. More on this topic on Thursday!*

In general, the upfront capital costs of in-sourcing and outsourcing disaster recovery are roughly equivalent, but ongoing disaster recovery maintenance and management may be higher depending on your firm’s individual approach and should be given careful consideration.

Technology: Evolving DR solutions for data security

Hedge funds are increasingly turning from tape backup to online backup services that will ensure that data are replicated and stored in secure offsite locations, be it the firm’s disaster recovery site or a site operated by a third-party vendor, such Eze Castle Integration’s partner i365. There are varying levels of online backup technology based on a firm’s size, complexity and desired costs.

With online backup, for instance, the data can be replicated to a remote facility on a fixed schedule (i.e. once per day, at set internal throughout the day, etc.). Data is automatically sent to an offsite location and retained for a set period of time. In terms of reliability and recovery, online backup is traditionally a better choice than the notoriously undependable tape backup method. Online backup, however, is not without its faults.

Typically, online backup is priced upon the amount of data being protected and the length of the retention. Therefore, as firms add more data and store them for longer periods of time, the cost increases exponentially. Tape backup, alternatively, is relatively inexpensive.

Another option for hedge funds is data mirroring, which provides near real-time replication. Data mirroring can be done on the server level, between individual production and disaster recovery hot-spare server pairs, or between two storage-area networks (SANs) – one in production and one at the disaster recovery site.

Data mirroring solutions deliver high recovery point objectives (RPOs) and recovery time objectives (RTOs) and are, therefore, considerably more expensive than tape or online backup solutions. The biggest benefit to data mirroring, though, is that end users will be able to quickly access their data, features and functions in order to quickly return to operations after an outage.

Data Protection: Tape is not enough

Although the minimal expense associated with tape backup is often appealing, as a viable solution, it falls short for hedge funds and investment firms looking for secure and reliable disaster recovery as part of a full-scale business continuity plan. Many firms are adopting a hybrid approach, whereby data required for short retention periods is replicated to an online solution and data destined for longer archiving is saved to tape and stored offsite.

Consider some of the uncertainties and questions that arise with using tape:

• Have we produced a quality backup?
• Where are we storing the data? If it is not offsite, the backup may not be helpful if your data center is destroyed.
• Are the drives and equipment at the offsite location compatible with our tape format?
• Assuming we have compatible systems, will the tapes index and restore correctly to achieve a successful recovery?
• How quickly can we access our data on the tape and become operational?

Each firm will have its own requirements when it comes to disaster recovery, and they should strongly weigh their options when making decisions.

Keep Reading, "DR Hot Site vs. Remote Site: What's the difference?"

Resources

• Knowledge Center: Disaster Recovery -- packed full of information
• Solution: Eze Disaster Recovery
• Solution: Eze Business Continuity
• Solution: Eze Vault
• Report: Establishing Business Continuity & Disaster Recovery Plans (20 pages)

There are three primary questions every investment management firm should first ask itself when it comes to personal information:

• What information is being stored?
• Where is it being stored?
• Who has access to it?

Now let’s look at what an investment management firm should do with the answers to these questions.

Step 1: Data Mapping – Where is your information stored?

Data Mapping is one method that will help you understand what information is being stored within your infrastructure. Data Mapping involves searching your entire organization to determine what personal information is stored and where. Once the data is found, maintaining your organization’s data map is very important. This will help ensure that the personal information remains secure. Maintaining a data map, however, can be a time-consuming and challenging process, and might be a task a firm would want to outsource.

Step 2: Data Loss Prevention: Protect your information

After you understand where your data resides, you will need the proper technology in place to protect it. Data loss prevention (DLP) technology is often one piece of the puzzle. DLP technology, such as GTB Technology’s eDiscovery product, can be used to monitor and protect data at rest, in motion and on the endpoints through deep content inspection and the constant monitoring of transactions occurring across the network. In other words, data loss prevention technology will ensure that any personal information that is stored within your organization does not leave without the proper authorization.

The actual information your firm is storing likely includes a vast array of documents, communications and other materials. Protecting that information, unfortunately, is not a simple task. For example, the types of communications you should be controlling and protecting include email, webmail, instant messaging, peer-to-peer sites, FTP and HTTP. Here’s a diagram to highlight the insider threat many investment firms face:

According to Cisco Ironport, a leader in email and web security technology, “whether it’s email, instant messaging, webmail, a form on a website, or file transfer, electronic communications exiting the company still go largely uncontrolled and unmonitored on their way to their destinations – with the ever-present potential for confidential information to fall into the wrong hands.”

Encryption
Encryption is another essential component of data loss prevention and web security. In accordance with the new MA state data protection law, firms must encrypt all communications containing personal information that traverse a public network (i.e. the Internet). When looking to encrypt your firm’s communications, there are a few methods to consider.

The first is the most simple: turning on Transport Layer Security (TLS) within your mail environment. If the mail recipient also has TLS enabled, your firm’s email messages will now be encrypted and secured from prying eyes. Additionally, the messages will be able to be archived in clear text for SEC compliance audits.

If this solution is not an option for your firm or you are communicating with individuals who do not have TLS enabled on their mail environment, there are secure mail portals which allow you to send out a notification that there is an encrypted message waiting for them on a hosted portal. The recipient would then log in to the secure portal and view the message. The potential downside to this is that the full message would not be archived for SEC compliance on the recipient’s side.

Even with a fully implemented data loss prevention solution, a financial firm needs to proactively monitor its infrastructure and employees to ensure they are complying with the investment firm’s data loss prevention policies. An investment firm should ideally have control over each piece of data and the people that have access to that data. This should be accomplished through both physical and technical controls as well as corporate policies that the whole organization is trained on and follows.

To ensure compliance to the corporate policies, notification and message termination rules can be set up within your financial firm’s data loss prevention environment. For instance, a rule could be put in place to automatically disallow an email from being sent or forwarded by certain individuals if that email contains sensitive personal information. Another type of rule could prevent the copying of a file from a network shared drive to a personal USB drive. These types of rules could prevent a major data leak and save your firm from unnecessary public embarrassment.

Data Loss Prevention (DLP) technology allows financial firms to comply with data privacy regulations, but it also goes a step further and provides protection from the embarrassment of being publicly scolded and fined for not properly protecting your firm’s personal information. Whether your firm chooses to use DLP or another solution, it is more important than ever that you protect the sensitive personal information of your employees and investors and reduce the risk of a breach by executing carefully thought out and tested safeguards.

Resources:

• Data Loss Prevention Best Practices Article (21 pages)
  
• 5 Essential Ingredients to a Data Loss Prevention System(4-pages)
  
• Eze Castle: Contact us for help in selecting and implementing data loss prevention.

• Data Mapping;

• The Privacy Compliance Life Cycle; and

• Security Requirements and Solutions.

Before getting into the technology safeguards, let’s take a look at the legal requirements of 201 CMR 17.

Legislative History & Requirements

Beth Boland, Partner at Bingham McCutchen’s Securities Litigation and Privacy & Security Group, opened by highlighting Chapter 82 of The Acts of 2007. Chapters 93H & 93I work to direct OCABR in promulgating regulations, stimulating breach notifications and the destruction of documents containing personal information (PI).

According to OCABR, the vast majority of breaches occur with data in transit and on PDAs. Among those breaches, 97% were not encrypted data.

MA Data Security & Privacy Regulations

While your firm may not be located in the Commonwealth of Massachusetts, you may have investors with residences in the state – remember a vacation home in Nantucket may constitute residence if documents are sent to that address. Therefore, it is essential to fully understand the requirements in protecting your investors and your fund’s reputation.

The Basic Scope:

Any business, no matter its location, that “owns, licenses, receives, stores, maintains, processes, or otherwise has access to” “personal information” about a citizen of Massachusetts must comply. A breach occurs when the combination of first/last name plus data such as social security number, drivers license or state-issued ID number, financial account number or credit/debit card number is not properly encrypted in the transfer of data.

Core Requirements:

• Identify where PI is being stored in your organization- paper and electronic.
• Develop, instill and maintain a “comprehensive information security program”
• Encrypt data in transit and on PDAs to an “extent technically feasible.” Encryption is not synonymous with password protection. The data must go through an actual transformation that will require a process to return to readable.
• Oversee your third-party service providers handling PI. Furthermore, there is a duty to select capable vendors.
• Ensure the security program is “consistent with” industry, federal and state standards.

To build a “Comprehensive Information Security Program,” a business is expected to:

• Designate person(s) responsible for maintaining the program;
• Work to identify and assess “reasonably foreseeable” risks of leaking PI;
• Develop security policies for employees handing PI;
• Impose disciplinary actions for breaches; and
• Prevent terminated employees from accessing PI.

As well, it is essential to regularly monitor practices involving the transport and access to PI. If there is a breach, it is imperative to conduct a comprehensive investigation, involving a multidisciplinary approach. By thoroughly addressing the issue, you better protect your fund by proving that you are taking the appropriate steps to remedy the leak.

Standard For Compliance and Remedies

MA 201 CMR 17 works on a sliding scale in terms of remedies. The smaller the business, the less sophisticated you are expected to be. Additionally, fines can range from a minimum of $

25 to a maximum of $5,000 per violation. Beyond size of the firm, other factors in determining repercussions are the amount of stored data, resources available and the need for security and confidentiality.

According to OCABR, financial services make up the largest portion of breaches affecting Massachusetts’s residents at 56%. This means that you’re high on the radar and it is imperative to thoroughly address PI leaks.

10 Steps to Take in Properly Addressing a Security Breach

1. Assemble a response team, including IT, Legal PR & Operations.
2. Close gaps.
3. Investigate.
4. Notify Regulators (required in almost all states).
5. Notify banks, third-party vendors, and credit card companies/processors.
6. Notify customers impacted.
7. Ensure you are in compliance with Applicable Notification Law.
8. Where appropriate, be sure to draft a press release (potential litigation).
9. Establish a hotline for affected/potentially-affected customers.
10. Document everything.

Protecting Your Investors

Paul DiBlasi, VP of Alternative Investments at IntraLinks, further detailed the damages that can occur if firms do not take appropriate actions in complying with the Massachusetts privacy law. In particular, violations have the potential to deteriorate a firm’s reputation. With the loss of investor confidence, the ability to win allocations and retain investors is compromised.

DiBlasi highlighted that a Written Information Security Program (WISP) should be implemented to properly address risks. Steps for protecting data include:

• Using encryption technology adopted that meets industry standards;
• Restricting employee access to those who need the data to perform their duties;
• Implementing user authentication;
• Regularly monitoring for unauthorized use; and
• Holding service providers to the same standards.

Storage and “in transit” data solutions are available in the form of SSL (Secure Socket Layers) and Digital Rights Management technology (DRM). These are practices that you may be familiar with, but not necessarily know the terminology.

• SSL is a transport layer that encrypts the communication channel, but not the document. It’s often the noted on your browser with a small lock image.
  
• DRM is more thorough in that it encrypts documents and authenticates users. The real value in DRM is that it actually allows you to control what recipients do with the information (access, transport, control print screen). These controls can prevent your investors from sharing investor letters and risk reports with unauthorized users such as Bloomberg, Dealbreaker.com or The Wall Street Journal.

Data Mapping & the Privacy Compliance Lifecycle

Matt Bretan, Director of Strategic Consulting at Eze Castle Integration, pulled together our live web event by detailing the process of data mapping. Funds must develop an understanding of where PI is stemming from, where it sits within the infrastructure (paper, electronic) and by knowing exactly who has access to this data. Maybe most importantly, firms should know if that PI is ever sent outside of the protected network.

Another topic covered was the Privacy Compliance Lifecycle, which flows hermetically.

• The first step is identifying operational and technical risks. This means fingerprinting where and how are you storing your PI.
• Once you’ve gathered the specifics, you are able to recommend policies and procedures that you can put in place to appropriately prevent risk.
• The final step in a full rotation is training and maintaining. By educating and planning maintenance, you are constantly evolving to address technology updates that may pose new risks, and are better equipped to contain breaches.

Solutions such as ‘fingerprinting’ your data, preventing unauthorized movement of PI and securing mobile devices will greatly reduce the risk of detrimental breaches - which could lead to aggressive fines, erosion of the fund’s reputation and ultimately, the loss of investors.

Resources

• Download the complete webinar – “Protecting Your Fund - Complying with MA 201 CMR 17” (1 hour)
  
• Visit our Privacy Compliance Knowledge Center – It includes the webinar presentation slides plus much, much more.
  
• Previous Hedge IT blog posts on Privacy Compliance.
  
• Learn more about Eze Privacy Compliance.
  

Business Continuity Planning and Disaster Recovery have the same goal: to implement procedures that will enable a business to recover in the event of a disaster or disruption. But each has its own focus.

Business Continuity Planning for Hedge Funds

Business Continuity Planning revolves around people. A hedge fund business continuity plan should identify the steps necessary to get operations up and running as it relates to business functions and personnel. BCP plans usually identify mission-critical services, communication strategies, employee recovery procedures and training methods.

There are four critical steps to business continuity planning:

1. Identify what you need to protect. The simplest way to do this is to conduct a Business Impact Analysis (BIA). A BIA should include each functional area of your business (i.e. finance, operations, trading, human resources, etc.). This will help you acquire detailed information about each function’s business requirements – both during normal business hours and during a disaster.

2. Determine how you are going to protect. Developing recovery strategies is a great way to plan out your procedures. Identify two or three different scenarios and your corresponding responses. Establish specific communication strategies for each. Be sure to include strategies for internal and external communications.

3. Educate employees. Set up employee information sessions and table top exercises so everyone is on the same page and understands the policies and procedures. Develop resources to distribute – emergency contact information, wallet cards, and other vital materials.

4. Validate and test. Test your alternate site and remote access locations to ensure your business operations will resume quickly and efficiently.

While business continuity planning is designed to ensure your business and personnel are prepared in the event of a disaster, you must also ensure that your systems and infrastructure will be equally able to sustain a disruption.

Disaster Recovery for Hedge Funds

Disaster Recovery Planning is directly related to the technology and infrastructure that supports business operations. In developing a disaster recovery strategy, hedge funds typically examine what applications and services they have in production and which ones are mission-critical. File shares, email, accounting and trading applications and voice capabilities are often the first that come to mind, but firms should evaluate which are most essential to them.

The two most important factors associated with disaster recovery planning are the recovery point objective (RPO) and the recovery time objective (RTO).

Recovery Point Objective
The RPO is the point in time to which a firm must recover data as defined by the organization. In other words, the RPO is what an organization determines is an “acceptable loss” in a disaster situation. The RPO dictates which replication method will be required (i.e. nightly backups, snapshots, continuous replication).

Recovery Time Objective
The RTO is the duration of time and a service level within which a business process must be restored after a disruption in order to avoid unacceptable losses. RTO begins when a disaster hits and does not end until all systems are up and running.

Business continuity planning and disaster recovery have individual focuses, but they ultimately share the same goal: preparing businesses for potential disasters and ensuring those businesses are able to recover quickly and sustain minimal losses. Eze Business Continuity (Eze BCP) and Eze Disaster Recovery (Eze DR) offer financial firms reliable solutions to protect data and instill confidence with investors.

For more information on business continuity and disaster recovery for hedge funds, visit our Knowledge Center.

Resources:

• Report: Establishing Business Continuity and Disaster Recovery Plans (20 pages)
• Video: Meeting the Institutional Investors’ New Requirement: BCP & DR (1 hour)

The Communications Paradigm

Kevin Kasper, Principal at BK Communications Group, kicked off the event with an overview of what he has termed the Communications Paradigm for Hedge Funds.

Kevin explained that in the new asset allocation landscape, there is increased competition for assets, and every fund manager is guilty until proven innocent. Although this seems like a daunting environment, it is important for the manager to realize that every touch point with a prospect or client is an opportunity to build credibility, trust, and rapport.

The fund management team must first develop a core message and brand the fund. The brand must be set on a strong foundation - which should include an internal audit of marketing communications to create a consistent look and feel. Many funds turn to external resources for help in this process. This fresh perspective is usually a great idea for a fund that may not have experience in brand management.

Once a brand identity is created, build it out in materials - which can or should include the website, pitch book, brochure, newsletter, whitepaper, blast emails, and press releases. The manager is then better prepared in his/her personal presentation and heads into that prospect or client service meeting with a defined message and plan to deliver that message.

The Website

You probably picked up that I wrote website first in that list of materials - which was intentional. Times, they are a changin'. That’s why we asked Evan Rapoport, co-founder and managing partner of HedgeCo Networks, to join the panel. Among their other services, HedgeCo has designed over 400 websites for hedge funds, RIAs, and mutual funds. Evan explained that although hedge funds were a little late to the game when compared with other types of investment management firms, they can no longer afford to put up a website with a logo on it and nothing else. Or worse, to have no website at all!

Common practice was to entirely avoid hosting a website, in order to protect the fund from regulations prohibiting hedge fund advertising, marketing, and sharing of investment philosophy and performance. Yes, it may seem better to have no website rather than one which may put the fund at risk, but the benefits of setting up a well-run website far outweigh those of no website.

For one, a well-designed website can allow for a positive first impression with potential investors. It allows for open communication with investors, regardless of time zones and potential conflicts. Existing investors can instantly access fund performance information, up-to-date contact information, capital statements online. And finally, it will become the central distribution point for marketing material and investor letters.

Through the site, a fund manager can track investor qualifications ensuring only accredited investors can access the materials. A good website will also instantly index all requests for materials, including legal documents. This is key because these days, transparency is the name of the game. But like any game, there are rules. So how do you set up a website to be informative, transparent, and secure?

A secure hedge fund website will require a member login, which validates the prospect's name, company, position, and contact information.

A brief survey should inquire of their interests - who the registration is for, what their current involvement with a hedge fund is, how large their portfolios are, what their investment size is, and what kind of fund they are looking to invest in. Make sure you provide a section asking the prospect to certify what kind of investor they are. These questions, among others, will help ensure your fund's safety. Behind the website, set up processes to double- and triple-check the prospect's answers. Once you confirm who they are, you can send a link confirming their access to the website, where they can learn more specifics about the fund.

Be sure to set up the site with varying levels of access, dependent on the login. Prospects can see one layer, investors can access more, and ultimately, your fund's employees have full or near-full access to the site's content, including information on the management team, marketing materials, fund structure, performance, letters and articles, and legal documents. To be certain that your new website is in compliance, working with a reputable firm like HedgeCo Networks is always a good idea.

The Data

So now that we know how and to whom a fund can communicate, what should the fund communicate? Most funds work off of internal, typically homemade systems to organize their fund's data. Prospects, investors, performance... each bucket can contain thousands of pieces of data. It is important from both the communication and compliance perspectives that you ensure these thousands of pieces of data are well-organized, secure, indexed, and reportable.

Bob Guilbert, Managing Director with Eze Castle Integration, and John O'Connell, Sales Executive, were the final webinar panelists, reviewing how a CRM (Content Relationship Management) tool can aid in managing a fund's data for the website and reporting. The advantages to a CRM are numerous, by many funds still ask why they need a CRM. A hedge fund CRM can be especially useful to a hedge fund, which typically runs leaner than other financial firms. With less staff, it can be more taxing on a small fund to run reports, manage a website, distribute information, and organize customer information. On top of all the other functions that each person is responsible for, who has the time?

Setting up a CRM will allow for effective, professional communication with clients and prospects. A fund manager can more easily track multiple opportunities across investors through the centralized access to the information. A CRM will also organize client and prospect information more effectively, and will create efficiencies in reporting. Integrating the CRM to your fund's website, email, and hard copy reports will free up time and alleviate concern over which data is where, going to whom, when, and how! To learn more about Eze CRM, please click here.

This webinar was the second we've hosted on the topic of hedge fund marketing (you can watch the webcast from the first here), and we hope to continue to share more valuable information on this topic in the future. The hedge fund industry has evolved and is highly unlikely to revert back to the tight-lipped, secretive funds of years past. Don't jump into a Marketing & Communications Plan without first accessing the entire series of materials we've organized for you here. And as always, we are here for you to discuss your marketing plans. Reach out to us for ideas!

Yes, I know everyone’s heard of Salesforce.com, but we’re talking about a CRM application that is built specifically for hedge funds. As a tool that supports investor relations, a hedge fund CRM gives funds the ability to centralize all of their investor data, including contacts, documents and correspondence while also allowing investors to access fund information at any time, including transaction history, account balance statements and other investment data.

With today’s intense capital-raising landscape, a tool like this seems like a no-brainer, right? The reality is that many firms, particularly smaller ones, think a CRM app is out of their league or unnecessary. But the truth is that funds of all sizes need an efficient system for managing their contacts, prospects and clients.

So what should you look for in a hedge fund CRM?

Integration is one of the most important features of any CRM. These applications should not create more problems or require more time than employees have to devote. CRMs generally come fully integrated with key applications, i.e. Microsoft Outlook, which lends to more flexibility and less time and money spent on coordination between multiple applications.

CRMs also act as great sales and marketing tools for hedge funds. You’ll want to be sure it has:

• Mass Emailing: Most applications come with mass emailing capabilities, which allow funds to quickly and easily communicate with all investors and potential investors, while also giving investors the immediate information they require.
  
• Pipeline Management: Funds can also manage their sales pipeline and create performance estimates, among other things, all from one platform.
  
• Investor Portal: Another increasingly popular feature within CRMs is an investor portal or Extranet – a secure site where investors can log in to download specific reports made available by the fund. By giving investors easy access to relevant documents and reports, funds can increase confidence and satisfy growing demands.

In today’s marketplace, when competition for investors is more difficult than ever, a CRM might be just the thing an investor is looking for in a fund. It can be seen as a true investment in a firm’s business, in its appearance and professionalism. When it all boils down, operating with a hedge fund CRM and eliminating disorganized spreadsheets and Word documents could be what sets your firm apart from the rest.

Tips, Tricks & More

Since you took the time to read this post you're likely actively seeking new ideas for making your hedge fund stand out from the crowd. So check out these resources:

• Video: Communicate for Success: Experts discuss hedge fund communications, marketing and investor management (1 hour)
  
• Video: Stand Out from the Crowd: Hear about marketing, due diligence and technology strategies to differentiate your fund (1 hour)
  
• Whitepaper: Why Investors Want You to Invest in a Hedge Fund CRM: Extended version of this blog post (3 pages)

Finally, A Solution

Checkout the Eze CRM application.

That’s the number of records involved in security breaches in the US since January 2005, according to the Privacy Rights Organization. In reality, we believe that number should be much high because many cases of exposed records are unknown or just not reported.

Just last week the Educational Credit Management Corp in St. Paul, MN reported personal information (names, addresses and social security numbers) for about 3,000,000 borrowers was stolen. It has since been recovered, but who knows how many people copied the data before the physical CDs were found.

Security breaches like this have prompted states to enhance their data security protection laws. The law with the most force? Massachusetts 201 CMR 17.

MA 201 CMR 17’s Unique Requirements

• Identify Risks: Businesses that have MA employees or clients/investors must identify and assess internal and external risks to personal information (PI).
  
• Inventory Location of PI: Find where PI is stored, including electronic, paper and other records, as well as on laptops and mobile devices.
  
• Encrypt Hardware and Data Transmissions: Firms must encrypt all files and records containing PI that are transmitted over public networks. Plus, the reg. requires the encryption of information stored on laptops, flash or USB drives and wireless mobile devices.
  
• Oversee and Obtain Written Guarantees of Adherence from Third-Parties: You have to ensure that your third-party service providers are also compliant with 201 CMR 17.
  
• Routinely Evaluate and Adjust Program: This isn’t a case of set-it and forget-it. You’ve got to monitor the security programs and make sure the scope matches your business and risk profile.

What’s at Stake?

Violators of 201 CMR 17 will face stiff monetary penalties – as much as $5,000 per violation – as well as the less calculable effects surrounding a business’ reputation.

Eze Castle Integration Privacy Compliance experts can help guide you through this process. Check out our Privacy Compliance services overview.

More Resources

• Privacy Compliance Standards, Remedies and Safeguards: What you need to know -- Blog Post
  
• Defining Data Mapping and Data Loss Prevention Technology for Financial Firms -- Blog Post

• Privacy Compliance Resource Center -- Articles, videos & more

At Eze Castle, we’ve seen a dramatic increase in awareness about business continuity planning and disaster recovery strategies, but too often folks just don’t know where to start or fear the price will be prohibitive. Let’s look at those two perceived issues.

Issue #1: Where to Start? Here are four steps to think about when tackling Business Continuity Planning.

1. What are you protecting? Determine recovery strategies based on your most critical business components. Some things can wait 24 – 48 hours and some things just can’t.
   
2. How are you going to protect it? Consider the following scenarios and come up with responses:
   1. #1 Building is still standing but closed to tenants
   2. #2: Building has been damaged and/or lost power
   3. #3: Regional impact to the primary office location area
      
3. Educate Employees: People panic, so be sure they are prepared. Hold employee information sessions and conduct table top exercises.
   
4. Validation: Test, test, test. We all know what is said about the best laid plans. Don’t fall into this trap. Disaster recovery systems should be tested quarterly and business continuity plans should be reviewed at least annually.

Issue #2: It’s just too expensive…Not anymore.
The emergence of cloud computing as a viable, secure solution for hedge funds has significantly changed the disaster recovery and IT landscape for firms. Cloud computing is good for disaster recovery and here’s why:

1. It delivers increased uptime with redundant systems, automatic failover and backup;
   
2. It lower costs with shared storage and virtual drives for maximum use of system assets; and
   
3. Cloud computing provides grow-as-you-go flexibility with available compute modules and storage drives.

To get deeper into BCP and DR strategies, check out our Knowledge Center for whitepapers, webinars and how-to guides.

Or, view our presentation from the FRA Due Diligence Master Class.

Our company is passionate about two things: Technology & Hedge Fund Operations. Our employees love testing new technology so much that we built out three labs where they can give new products a dry-run to gain expertise and, of course, make sure the products can exceed our clients’ demanding environments.

Running in our labs right now is a mix of technology including NetApp FAS storage systems, Dell EqualLogic SAN arrays, Intel Modular Servers (IMS), VMware, Cisco networking gear and much more. We also have a telephony lab where we play with the latest voice technologies.

We know that technology alone can’t solve all of a hedge fund’s challenges, and what type of partner would we be if we didn’t take a holistic approach to helping our clients. That’s why we’ve developed in-house expertise around hedge fund operations. We provide consulting, host events, write articles, and of course, offer products that help, too.

So why are we telling you all this? Well, our passion is the catalyst for our new blog – Hedge IT. Over the coming weeks, months and years, we’ll be writing articles on a range of hedge fund technology and hedge fund operations topics. This month you can expect to read about:

• Disaster recovery and the due diligence process: What are investors really asking?;
• The technology behind privacy compliance;
• Why investors want hedge funds to use a CRM system; and
• Tips for enhancing your hedge fund’s communications program.

As you can see from these topics, we will be moving between technology and operations regularly, but you can always expect to learn something new.

So welcome to Hedge IT, and we hope to you’ll visit again soon!