What Do Hedge Fund Investors Think of the Cloud?
It’s a question that many folks in the financial services industry have been asking for a few years now. Are potential investors comfortable with the idea of hedge funds leveraging cloud services? In Part 1 of our cloud webinar series, The Investor Perspective on Cloud and Security, we asked Ashley Gimbel, Senior Vice President at Dyal Capital Partners, to share her thoughts on evaluating the operational and infrastructure decisions of hedge funds and alternative investment firms and if investors are truly comfortable with the cloud. Click here or scroll down to watch the full replay of our conversation with Gimbel.
The simple answer is ‘yes.’ According to Gimbel, investors are and should be at ease with hedge fund clients using cloud infrastructures to support their daily operations. In fact, she says, hosted infrastructures often make more sense for firms with little to no IT resources in-house.
With a few caveats, of course. Firms should ensure outsourced cloud providers have proper Service Level Agreements (SLA) in place and are conducting appropriate oversight of their provider(s). A few other technology must-haves:
Well integrated data and systems
Established policies and procedures
Comprehensive disaster recovery
Gimbel also suggests that even firms without internal IT resources should have a dedicated individual to own service provider relationships and maintain at least a high-level understanding of the firm’s technology systems and components. Investors don’t want to hear just from your cloud provider; they want to hear from you.
What about public clouds? Is are investors less comfortable with firm’s using public solutions than vertical-focused private cloud providers? Yes, again. The public cloud has its place, according to Gimbel (testing and development, for example), but it simply is not suitable for enterprise IT environments. That goes for full-scale solutions (such as AWS and Azure) and public cloud storage tools like Dropbox and Box.net.
Even though private cloud services are preferable, every solution is not created equal. It’s imperative for hedge funds and investment management firms to do their own due diligence on service providers to ensure they are building long-term, beneficial relationships. Gimbel suggests firms do the following when evaluating cloud providers:
Tour the company’s data center(s) to understand where and how your technology will be managed;
Check references as you would with any other contract/relationship you enter into;
Ensure cloud security best practices are followed. For example, use eSentire’s cloud security checklist to determine if/how providers conduct risk assessments, manage change controls, employ password policies and more.
A couple of red flags for investors when it comes to firms leveraging outsourced providers include those providers who are unknown in the industry as well as firms using patchwork solutions rather than comprehensive platforms.
Gimbel admits that she’s seeing forward progress from firms on the cybersecurity front as they look to shore up operations, something she believes is particularly fueled by the SEC’s recent involvement. Investors have always asked tough questions, she says, but they are taking it to a new level and following the footsteps of regulators. Specifically, investors want to understand what hedge funds have in place for intrusion detection and prevention, penetration testing and vulnerability assessments, and employee awareness training.