Examining the Changing Role of the Hedge Fund CTO
Times have changed. There is little doubt that the hedge fund industry has evolved in recent years with the rise of new regulations, the wide spread adoption of cloud services and deep focus on cybersecurity risks.
But what effect do these changes have for the person responsible for technology at a hedge fund or investment firm? As a Chief Technology Officer (or comparable role: Director of IT, Chief Information Officer, etc.), one has historically been responsible for day-to-day IT functions and routine technology refreshes. But as the industry has experienced rapid change over the last several years, so too have the CTOs and their responsibilities.
A CTO in today’s world must wear many hats. In addition to needing knowledge on a variety of technical skills such as networking, storage, virtualization, telecommunications and resource management, a CTO must also possess a variety of business and non-technical skills to support the organization. These include:
Regulatory Requirements: With the Dodd-Frank Act and other new regulations in effect, investment management firms have a whole new host of requirements to meet. CTOs have to run daily or intraday reports to satisfy new legal requirements, store and archive emails and other messages, and work with regulators on a regular basis to ensure their firms are complying with all necessary directives.
Compliance: In addition to complying with the regulatory requirements above, there are also new internal compliance procedures hedge fund CTOs have to grapple with. Particularly in the post-Madoff era, firms are implementing policies to combat insider trading and other securities risks. Mobile security and BYOD issues are another area for technology directors to focus their attention.
Communication Skills: Despite the fact that they are forced to work with inanimate objects all day, technologists must also maintain good communication skills to support their technical operations. The increased focus on transparency and due diligence has led to many CTOs interacting directly with investors on a daily basis, educating them on how technology is supporting and protecting their assets. Working more frequently with investors and regulators means CTOs need to work on their interpersonal communication and ensure they are properly representing their organizations.
Security: Okay, so this one is still partially technical, but security has become one of the most important – if not the most important – aspect of a hedge fund’s technical operations. In addition to managing the back end infrastructure, a firm’s technologist may also be responsible for or involved in drafting policies and procedures to support security operations within the firm and servicing as the firm's Chief Information Security Officer..
While dealing with increased focus and responsibilities relative to regulations, compliance, and due diligence have added to the plates of hedge fund CTOs, another phenomenon has also contributed to this change in role. The popularity of cloud computing (and outsourcing in general) has prompted many hedge funds and investment firms to reevaluate their technical strategies and reallocate their technical resources.
While some firms have opted to reduce or eliminate their IT staffs and outsource all technology, others have opted to maintain internal technology resources while also utilizing the cloud. It can be done effectively and efficiently, and many larger firms, in particular, find it beneficial to use the cloud and also have internal staff dedicated to other technical projects.
Regardless of the approach, the prevalence of cloud computing in the hedge fund industry is driving technologists to evolve their technical and non-technical skills. The cloud means IT roles shift from hands-on work with hardware and installations to resource management, integration, capacity planning, and technical architecture.
For each firm, the dynamic is different. While many of the traditional roles of the hedge fund CTO are changing, others remain the same. Many firms still maintain that they need an internal resource for troubleshooting and other projects. Others prefer to focus their attention on the newer aspects of “technology” (i.e. compliance, due diligence, etc.) and leave the day-to-day IT functions to an outsourced third party. The role of the hedge fund CTO has certainly changed in recent years, and like the technology these professionals support, it’s safe to say their job functions may be markedly different in the years to come.
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