Hedge Fund Launch Tips II: Data Protection, Colocation, Archiving

By Mary Beth Hamilton | Tuesday, June 1st, 2010

Welcome to part two of our four part series on what you need to know about IT before launching your hedge fund. In our last post, we discussed the infrastructure security and telecommunications questions you should answer as you set up and prepare to launch your hedge fund.

Today, we’ll look at the critical areas of data protection, colocation and archiving.

Data Protection

Investors in today’s marketplace demand that hedge funds demonstrate their ability to maintain operations regardless of disasters or other external events. You must protect your hedge fund's data with a business continuity plan and disaster recovery system even before you begin working with clients.

So, what's the difference between a business continuity plan and a disaster recovery system? The two are complementary, but each fills an individual hedge fund data protection need.

Your business continuity plan should answer some important questions about your business, including:

Which employees are in decision-making roles?
How will you notify them in the event of a disaster?
Which processes are most critical to your firm?
How will you continue to operate if your location is compromised?

Your disaster recovery plan will detail all the steps you took to implement your technology and physical locations in the event that you need to recover essential applications, such as e-mail, trading data, voice services, etc.

Developing these two data protection processes properly might take as long as three months if you do it right. When you’re done, you should have plans that identify your essential processes and personnel and address all the elements necessary to resurrecting your business after an unexpected disruption. As you write your plans, be aware of some pitfalls:

A hedge fund disaster recovery site has many requirements including redundant power, HVAC systems, fire suppression systems and diesel generators; if your plan is to locate your DR site at an employee's home, you may need a new plan.
If your disaster recovery site is in the same area as your primary location, you could find yourself without access to your critical systems in the event of regional disasters.
Relying solely on physical tape backup is asking for trouble. Tape does not equal disaster recovery. Part of your plan should include the daily electronic replication of essential materials to an off-site location.

Colocation

One answer to your data protection questions is colocation. Colocation centers host your hardware and software off-site from your firm and provide more security than you might otherwise be able to access. If creating business continuity and disaster recovery plans makes you nervous, selecting a colocation service will ease your concerns.

By employing colocation, you can check-off a number of technology-related items essential for launching your hedge fund, including:

Ample bandwidth
Extensive, round-the-clock security, including surveillance and monitoring
Adequate power source
Regulated heat and humidity required for housing hardware
Data redundancy services
Ability to quickly and painlessly expand storage capabilities

If you decide colocation is the right option for your firm, choose a host that can install redundant connections and function with your current and potential applications. Keep in mind that location matters; every 60 miles between your firm and your data center translates to a millisecond of application response time. Colocation costs range from $1,800 to $3,500 per month depending on geographic location and your space requirements.

Archiving

Finally, you cannot forget about e-mail and instant message (IM) archiving; these capabilities are vital to complying with the many rules and regulations your hedge fund is required to meet. Under the Federal Rules of Civil Procedure, you are responsible for supplying electronically stored information upon request, including documents, spreadsheets, PDFs, e-mail, IMs and Bloomberg mail. The law prescribes a certain storage time for e-mail and IMs, and you should keep these messages in WORM (Write Once, Read Many) format.

You’ll also need a way to search files quickly so that you can meet any requests for materials in a timely manner. An offsite server accessible via the Internet is your best option for this type of data storage.

Your Pre-launch To-Do List

We’ve given you a lot to consider as you plan for the technology needs of your hedge fund. We’ll wrap up with a short checklist to help you keep important tasks top of mind.

Hedge Fund Launch To Do List