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I’m Launching a Hedge Fund. What Tech Questions Do I Ask?

Posted by Mary Beth Hamilton on Tuesday, January 29th, 2013

The latest HFR Global Hedge Fund Industry Report found that hedge fund assets increased by $60 billion in the fourth quarter of 2012, bringing total industry capital to a record $2.25 trillion.  With hedge funds posting performance gains and the new year upon us, we expect to see new hedge fund launches take off. 

Technology is just one of the many areas to consider when starting a hedge fund.  To help jump start the process, below is a list of some commonly asked questions we receive.

Where do I start in creating a technology budget for my hedge fund?

It is important to note that whether a firm selects to go with an in-house IT solution or cloud computing there will be implications on technology budgeting.  Once in-house versus cloud is evaluated, it is important to think about the workflows and systems you use to complete your work – be it email, reports, phones, market vendor applications, and/or risk systems.  You can find a technology budgeting worksheet here to help with your planning.

Why should I consider cloud computing?

Cloud computing is the preferred IT delivery model for most new hedge fund launches for a number of reasons.  In fact, 8 in 10 investment management firms are using a cloud service today.  The advantages of the cloud include reducing and transferring costs from CapEx to OpEx, increasing speed of technology deployment and simplifying IT management.  Additionally, many private cloud solutions offer built-in disaster recovery along with an enterprise caliber infrastructure that delivers availability assurance to end-users as well as investors.  Visit the Hedge Fund Cloud Forum to learn more about cloud computing in the hedge fund industry.

If I decide to build an in-house IT infrastructure, how long will it take and what steps are involved?

There are many crucial aspects of an IT build-out including technology infrastructure concept development, construction administration, telecommunications and market circuit procurement and systems installation/implementation management.  This process can take over six weeks.  

To maximize the efficiency of the project, it should first be broken down into carefully planned stages comprised of specific tasks and activities. Each task acts as a stepping stone or foundation on which the next task can begin, and pre-determined milestones should be built in to ensure each task is completed.  Checkout this handy IT project plan template for an idea of what you can expect.

What questions should I ask as part of the Request for Proposal (RFP) process when evaluating potential IT providers?

Here at Eze Castle we’ve answered just about every technology question under the sun.  Using these experiences we created an extensive list of sample technology RFP questions.  The list is long, so as a word of consideration, select the questions that are most applicable to your needs/businesses.  We’ve divided the list into two sections, which you can access via the links below:

Are there specific questions I should ask a Cloud Computing Provider?

Yes there are.  Since your entire IT world will be in the hands of the cloud provider you want to thoroughly vet their company as well as the services and cloud infrastructure they provide.  On the Hedge Fund Cloud Forum you can find a list of 26 questions to ask a potential cloud provider.

Also, managed security service provider, eSentire, has developed a checklist of security related questions to ask a cloud provider.  You can find that list as well as Eze Castle Integration’s answers here.

What are potential investors going to ask me during an operational due diligence review?

A comprehensive DDQ covers a wide range of topics, from assets under management to audited financial statements and investment strategies. One major area of focus is the fund’s IT and accompanying security policies and procedures. At Eze Castle, we frequently assist our hedge fund clients in completing DDQ questions on technology, and we often see the same types of questions popping up. So, to help you get started, we have compiled a list of some frequently asked DDQ questions and you can download the sample hedge fund DDQ list here.

What are some common mistakes hedge fund managers make when it comes to technology?

We originally published this list of common mistakes in our Guide to Launching a Hedge Fund and they still stand true:

  • Looking for the perfect solution

  • Insufficient planning for the future

  • Failing to understand how much you rely on technology today

  • Overestimating your internal capacity to manage technology

  • Shortchanging the training options and resources

  • Not testing disaster recovery and business continuity plans regularly

Launching Hedge Fund Guidegook












 

Categorized under: Launching A Hedge Fund  Cloud Computing  Hedge Fund Due Diligence  Hedge Fund Operations  Infrastructure  Outsourcing 



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