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Hedge Fund Technology with a Side of Manpower: Outsourced staffing options abound

By Mary Beth Hamilton | Tuesday, October 6th, 2015

People take vacations. Companies don’t.

Hedge funds, just like most financial firms, need staff to run their technology, handle special projects, build (and manage) complex applications and, of course, execute core business activities. But in many cases it is not realistic or cost-effective to keep everything in-house. Enter outsourced staffing.

Outsourced staffing options for hedge funds abound. So let’s take a look at five common outsourcing practices. If you want to learn about other areas to outsource your hedge fund's technology, read our Manager's Guide to Outsourcing here.

1. Supplemental Staff

Permanently staffing an IT department for absolute peak capacity, by hiring standby employees to fill in for absent team members, just doesn’t make sense. As an alternative, hedge funds often turn to outsourcing to cover employee vacations and sick time or to supplement a team during special projects. This strategy is far more cost-effective than expanding full-time headcount. It also provides the fund with a ready backup contingency plan, as well as the flexibility to scale up resources as needed.

2. Complete Outsourcing (External Staff)

Rather than building an internal IT department, an investment firm can hire an outside provider to take ownership of its entire technology function. For a hedge fund manager, this approach offers relief from the daily burdens of managing an in-house staff and provides a cost-effective way to access best-of-breed technical skills. If the vendor uses dedicated resource pools, its staff can build a deeper understanding of the fund’s business processes.

Outsourced vendors can also assume responsibility for the hedge fund’s technology management and planning, helping to make budget forecasts more accurate and predictable. In addition, they can take the lead in training a hedge fund’s staff on IT systems and tools. Take caution though -- before entrusting your entire technology platform to an outside party, be certain that the vendor thoroughly understands the financial industry and operates from a position of financial strength and stability.

3. In-House with Outsourced Support Staff

A hybrid model consists of at least one in-house IT professional supported by additional staffing resources provided by an outsourced vendor. It differs from the supplemental staff model because it represents a permanent, strategic arrangement rather than a temporary, ad hoc remedy.

This approach allows a fund to employ its own IT resources and provides access to the knowledge base of an outside vendor for research and development, instead of depending entirely on the skills and experience of a small in-house staff. For the arrangement to succeed, the hedge fund manager and vendor must work together to coordinate planning and activities.

4. Value-Added Services: DR, App Dev, Colocation

Even an in-house IT department that successfully supports day-to-day operations may encounter special challenges beyond its capabilities. Certain disciplines—such as disaster recovery, compliance, application development and network design—call for highly specialized skill sets. Outsourcing is an affordable way to tap into top expertise and best practices in these disciplines.

At the same time, it can also help make budgets and schedules more predictable compared to tackling the same complex, unfamiliar projects in-house. These value-added projects are narrower in scope than complete staff outsourcing. However, because of their mission-critical nature, they require the same vigilance with regard to vendor experience and financial strength.

5. Custom Technology

Like other value-added solutions, custom technology outsourcing offers a hedge fund access to raw IT resource power, as well as a repertoire of specialized skills. Custom projects can range from new application development to Web design, and from developing new technology to enhancing existing platforms. The selected provider should be able to handle all phases of a development effort including requirements, design, usability, development, testing, deployment and hosting.

Want more information about hedge fund technology outsourcing? Download our Outsourcing Guidebook, and read these other relevant articles:

Hedge Fund Tech Outsourcing Guidebook
Editor's Note: This article has been updated and was originally published in September 2011.

Image Source: Shutterstock

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