Trends in Hedge Fund Technology Outsourcing
Following is an excerpt from our Guide to Hedge Fund Technology Outsourcing. Skip ahead and download the full paper HERE.
As technology continues to grow as an important competitive differentiator for hedge funds and investment firms, funds are continuing to leverage technology outsourcing as part of their operational strategies.
A variety of circumstances in the industry have driven this move to outsourcing including:
The changing economic environment as a result of the financial crisis;
increased investor focus on transparency and operational risk; and
Rising overheard costs relative to owning, maintaining and monitoring one’s own technology infrastructure.
Hedge funds and investment firms can leverage outsourcing in a variety of ways – everything from help desks to document management, virtual Chief Technology Officers and other staff to disaster recovery plans, FIX connectivity and more. But regardless of the specific elements being outsourced, funds should look for a few baseline requirements as part of an outsourcing solution:
A secure physical infrastructure;
Efficient and reliable communications;
Data protection; and
Vendor strength and stability.
Hedge fund technology outsourcing options have evolved in recent years to support the growing needs of hedge funds and alternative investment firms.
Through the cloud, funds can leverage outsourcing options such as software-as-a-service, infrastructure-as-a-service, disaster recovery solutions and more. Funds can avoid making expensive hardware purchases and instead leverage the infrastructure of a proven, private cloud services provider.
Sometimes funds need personnel more than technology or infrastructure services. Outsourcing offers firms a variety of staffing options: for larger firms with in-house technology employees, they can leverage the expertise of a virtual Chief Technology Officer or supplemental support staff for special projects. Smaller firms that do not employ their own IT staffs may choose to outsource that department in its entirety so they can focus on doing what they do best – making investment decisions.
For investment funds not quite ready to outsource their technology solely to the cloud, colocation offers an alternative which allows for increased availability and redundancy without the need to maintain infrastructure on-site.
Outsourcing FIX connectivity helps funds reduce costs and time commitments for installing, testing and maintaining connections to brokers.
Editor's Note: This article has been updated and was originally published in September 2011.
Photo Source: iStock