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Four Hedge Fund Technology Trends Not to Miss

By Anna Wendt | Tuesday, March 3rd, 2015

Two months into 2015 and already there have been changes within the financial service industry. From global security breaches, to the demands for increased investor transparency, to start-up funds launching and competing with their enterprise counterparts, the hedge fund landscape is as turbulent as ever. From a hedge fund technology perspective, there are a couple major trends that have started and will definitely continue to play out during the rest of 2015.

Zeroing in on these trends, today we released our new whitepaper aptly titled Four Trends Shaping Hedge Fund Technology. Read on for a sneak-peak of the topics covered in the paper and be sure to download the complete paper HERE.

Hedge Fund Technology Trend #1: Cybersecurity 

One can’t look at a news source today without reading some sort of headline depicting another data breach or hack attack. The types of attacks facing the hedge fund industry are extensive and include:

  • Phishing/Spear-phishing: This type of attack is used to trick end users into giving up sensitive or personal information or making a financial transaction. While the attacks have the same intent, spear-phishing has a targeted approach and requires more research than a normal phishing attack.

  • Malware: Also known as malicious software, it is used to gain access or to disrupt system operations. Recently there has been an adware scandal, with Lenovo, a personal computer company. The organization sold computers that contained adware, which left the users vulnerable to hackers and viruses. 

  • Distributed-Denial-of-Service (DDoS): DDoS attacks will make a website or system unusable and are common strategies of hackers.

SEC Cybersecurity Exam Involvement
Beyond proactively protecting against attacks, funds must also understand regulators' expectations around cybersecurity. In 2014, the Securities and Exchange Commission (SEC) released a 28-point questionnaire to investigate the security practices and protocols of firms in the investment sector. Then last month they released key cybersecurity exam findings based on the questionaire, which covers topics including:

  • Identification of Risks/Cybersecurity Governance

  • Protection of Firm Networks and Information

  • Risks Associated with Remote Computer Access and Funds Transfer Requests

  • Risks Associated with Vendors and Other Third Parties

  • Detection of Unauthorized Activity

A few best practices included firms having Written Information Security Policies (WISPS) and taking a layered approach to hedge fund security. Check out our top 10 takeaways from the SEC cybersecurity exam sweep HERE.

Hedge Fund Technology Trend #2: Due Diligence

Recently, IT and operational due diligence have seen an increased focus during the investor due diligence process. Investors are starting to devise lengthy and in-depth due diligence questionnaires for hedge funds – and by extension, their service providers – to gain more understanding of the processes and policies in place. The hedge fund technology questions typically fall into these categories:

  • Company/Organization Background

  • Annual Assessment/Audit

  • General Information Technology

  • Systems and Information Security

  • Access Control

  • Network Security

  • Physical Security

  • Disaster Recovery and Backup

Hedge Fund Technology Trend #3: Cloud Adoption

No technology trends article would be complete without exploring the impact of cloud technology. In the last decade, there has been a major transition within the financial service space to move from in-house technology and infrastructure to using an outsourced cloud solution to satisfy their needs. With 87% of investment firms using cloud solutions, the question now is how to reap maximum benefits.

Hedge Fund Technology Trend #4: The Changing Role of the Hedge Fund CTO

With the increase of cloud-powered infrastructures, the Chief Technology Officer’s (CTO) job is evolving from that of a day-to-day IT manager to that of a strategic business partner for the firm. Hedge fund CTOs are increasingly expected to focus on high-level projects like strategic discussions, compliance requirements and IT integration.

Download the "Four Trends Shaping Hedge Fund Technology" whitepaper and read in-depth about the topics brought up in this article.

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