Grading your cloud provider: four critical criteria
This article was written by Bob Guilbert, Managing Director, and first appeared in Hedgeweek's 2016 Guide to Setting Up an Alternative Investment Fund in the USA.
You're a new fund manager, and somewhere on your task list the letters "IT" are probably followed by a question mark. Odds are, you don't have a technology background, so as your firm's Chief Operating/Financial/Compliance Officer (or in some cases, Portfolio Manager), the sudden responsibility you've undertaken as your firm's de facto IT Manager is intimidating at best.
The good news is, as a startup, your IT options are pretty clear. In 2016, there's no better technology decision a new firm can make than selecting a cloud platform – an infrastructure that has proven benefits including scalability, flexibility and robust security, among others. And while the thought of hosting IT offsite was once a worry for allocators, today's investors find comfort in knowing hedge fund and alternative investment firms are focusing on their investment priorities and leaving the technology decisions to the experts.
From our perspective, the cloud is now a tried and tested infrastructure environment that is acceptable to the institutional investor community. They have become very thorough in their operational due diligence process, understanding exactly what cloud providers provide from an operational, management and security perspective. This has allowed managers to become much more comfortable at appointing a cloud provider to deliver an infrastructure that will perform well in any type of trading environment.
Where managers need to spend their time is deciding on the best cloud provider to work with, as opposed to thinking about whether or not they should use a cloud provider in the first place.
And how exactly do emerging fund managers embark on that decision-making process?
There are clear indicators to look for and expect from a cloud services provider with whom you wish to entrust your firm's technology lifeblood. Among them, these four:
Experience & reputation
When entering into a new partnership, you want to feel confident that the other side understands you and appreciates your unique qualities. Whether that relationship is romantic or professional, the same sentiment applies. Your fund's IT service provider should have a deep understanding of your business – that means knowing the ins and outs of the financial services industry as well as the technology that powers it. Beyond industry experience, take note of a service provider's reputation in the industry. If their resume touts long-standing relationships with clients just like your firm, that's a telling sign.
Breadth of solutions
One of the great benefits to leveraging an outsourced cloud provider is that it checks off an important box on your task list. But what about the bullets under that list? If the provider you select has a limited portfolio of services, that means you'll need to forge additional outsourced relationships and end up worrying about how the providers/services interoperate. Wouldn't it be easier to engage with a provider that features solutions and services to complement your firm's entire IT foundation? Think: disaster recovery, email archiving, information security planning, telephony services. One provider versus four or five providers? Sounds like a simple answer.
The here-and-now is important, but it's not everything. With everything you're juggling at the outset of your launch, it's easy to put plans for the future aside. But it's a critical mistake if you do. In selecting a cloud services provider, you want a partner who can grow with your firm, even if today that firm is only made of a handful of employees. If all goes well, that number will grow over time, and you'll need an IT solution to grow along with you. Think about where you'd like to see your firm in three to five years. How many employees will you have? What kind of resources/real estate will you need? Will you expand to other office locations? Do you want an international presence? Understand from the start whether a cloud provider/platform can support these future growth plans.
We're all concerned about the potential for a security breach to wreak havoc in a business setting, and preventing such an occurrence is not an easy feat. Employee awareness and training are arguably the most important factors in preventing a workplace security incident, but let's not overlook the technology must-haves. To protect your firm and investor assets, you need robust security measures employed across all aspects of your firm's infrastructure – everything from the desktop to the data center. And managing all of that won't be easy. Fortunately, experienced IT providers have the ability to invest heavily in security protections that can detect and prevent outside cyber threats and can even help train your staff to ward off internal incidents.
If you can identify a provider who meets the criteria above, you're well on your way to achieving the institutional level of IT today's investors demand of financial firms.