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Tech Tips for Starting a Hedge Fund

By Kaleigh Alessandro | Tuesday, November 4th, 2014

Last week, we co-hosted another exciting Hedge Fund Startup event with KPMG in New York and had a great turnout of fund managers looking to learn more about everything from legal and tax implications to technology must-haves and capital raising strategies.
Since technology is clearly our forte, we wanted to share some of the key takeaways from our “Achieving Institutional-Grade IT” panel, featuring speakers from Evercore Partners, Bank of America Merrill Lynch and, of course, Eze Castle Integration. Here are the highlights:

State of Emerging Manager MarketOutsourced Responsibility

  • The hedge fund startup market is healthy, and investors’ appetite for emerging managers is strong

  • Investors are attracted to the nimbler, hungrier nature of emerging managers. 

Key Priorities for Startups in 2014/2015

  • Select the right service providers to support your business.

  • Understand your firm’s vulnerabilities and exposures.

  • The operational due diligence process is changing, therefore firms need to understand the protections they have in place to secure investor assets. 

Selecting the Right Infrastructure (i.e. Cloud vs. On-Prem)

  • The pendulum has definitely swung to the cloud for firms of all shapes and sizes.

  • Hedge funds, especially new launches, want the easiest, quickest and most cost-effective solution to support their business. The answer is generally cloud.

  • If the cloud is your preferred infrastructure method, be sure to consider vendor oversight and, if using multiple clouds for multiple solutions, how they talk to each other and comingle. 

Service Provider Selection/Oversight

  • You can outsource the accountability of your data, but not the responsibility.

  • When SEC/FINRA calls, you as the fund manager need to be able to provide the right answers.

  • When it comes to service provider relationships: trust, but verify. Ensure you get supporting documentation to authenticate the practices/protocols they say they have in place to support your firm’s data and assets. 

Cybersecurity is Focus #1

  • Determine what your firm’s attitude toward security is.

  • Management sets the tone, but security should start at the employee level. 

Advice for New Managers

  • Plan for the future. Build an infrastructure that can scale along with your firm’s growth. Changing the way your firm does business (as it relates to your technology) will be much harder down the road.

  • Expect IT security audits to increase in depth and frequency.

  • Regulators are coming and will hold you to the same standards as the large, established investment firms.

  • As investors deepen their operational due diligence on you, you should deepen your due diligence on your vendors and service providers.

To read more on this topic, check out these resources:

Photo Credit: Eze Castle Integration

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