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Disaster Recovery for Hedge Funds: Key Considerations

By Kaleigh Brousseau | Tuesday, May 11th, 2010

Last week we looked at the differences between Disaster Recovery and Business Continuity Planning.   This week we’re going to go deeper into disaster recovery planning and considerations for hedge funds and investment management firms.

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?disaster recovery for hedge funds guide book

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.

Eze Vault- DR for hedge funds, hedge fund disaster recoveryWith 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 on Hedge Fund Disaster Recovery:

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Photo Credit: Eze Castle Integration

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