It’s no secret that investment management firms (including hedge funds and private equity firms) have historically been divided over the use of public and private clouds. We’ve discussed it in depth here on the Hedge IT Blog, explaining the differences between the two and why most funds are choosing to go with a private cloud solution.
A case can be made, however, that there’s a time and a place for each cloud platform and both offer their own advantages for financial services firms. We’ve taken a look at some of the key areas firms will consider when looking at public and private clouds and identified which we think comes out on top.
Service & Support
Hedge funds and private equity firms demand uptime to ensure operational efficiency and profitability. Public cloud providers, however, do not offer investment-specific IT support and rather have limited customer service representatives troubleshooting the most basic of email and desktop support issues. In the event of a crisis situation or an outage, hundreds of thousands of users will be trying to reach a limited number of support personnel, creating additional problems and highlighting a severe lack of customer support. As we’ve seen in recent years, many public cloud providers (such as Google and Amazon) have had outages last hours or even days at a time – situations that prove costly to any investment firm. With a vertical-specific private cloud platform, funds often have access to 24x7x365 engineering support that is tailored to meet the demands of their unique investment funds.
Edge: Private Cloud
Scalability & Application Integration
While a public cloud offering may entice small start-up firms in particular, it is likely these firms will soon outgrow these services and be forced to migrate their data and infrastructure to a larger, more tailored platform. For example, traditional public cloud services do not offer or support vertical-specific application integration; as a firm grows to require a portfolio accounting platform or order management system, they will find that these applications are incompatible with their current cloud offering. On top of that, public cloud providers generally do not support any form of custom application integration or hosting of any hardware dedicated specifically to the fund itself.
With a private cloud solution, firms can easily grow and scale upwards as well as incorporate financial-specific and custom applications. Hedge fund private clouds are building up their lists of hosted applications (Eze Castle’s cloud currently hosts more than 100 applications), allowing firms to reduce hardware costs and scale upwards by adding new users.
Edge: Private Cloud
Testing & Development
One area where the public cloud shines for many is for purposes of testing and development. Traditionally, 'dev test' environments have required dedicated infrastructures and significant resources, putting pressure on firms to invest in additional costly hardware. Unfortunately, testing environments can also fall by the wayside if underutilized, deeming these investments wasteful. With the public cloud, firms can easily and cost-effectively set up testing and development environments without the fear of overspending or underutilization.
Edge: Public Cloud
Security & Compliance
From a security perspective, a lot remains unknown with regard to the public cloud. Public cloud security likely varies from provider to provider, but overall, is limited in its scope. Additionally, there is less transparency on the security front, and firms using the public cloud are less likely to be provided with deep knowledge around the infrastructure and security controls maintaining their data and assets.
Larger, public sites such as the Googles and Amazons of the world are inherently more susceptible to viruses, cybersecurity attacks and intrusions. Experienced hackers are much more likely to target a large, public enterprise that has greater potential for a breach – and greater potential for headlines. Plus, these companies employ significantly more personnel, meaning the risk of an internal cyber incident is greater. Private cloud providers are much more likely to employ strict access controls and implement security practices that will prevent and detect intrusions and maintain the safety of firms’ data and infrastructure.
On the compliance front, there are a number of demands placed on hedge funds, private equity firms and other investment advisers. Since 2014, the SEC has made cybersecurity a strict priority, advising firms to employ layers of security to prevent, detect and respond to threats originating inside and outside the firm. Sophisticated security methods such as intrusion detection and prevention tools and regular vulnerability assessments are strongly recommended. Plus, the SEC advises funds to retain all internal and external email and instant message communications that are business-related. Many private cloud solutions offer firms message archiving services, which will allow firms to store communications for the designated period of time and recover any necessary communications in the event of an SEC inquiry. Some public clouds, however, are unclear on whether they offer such a service.
Edge: Private Cloud
The low-cost option of public cloud computing platforms is seriously appealing to many firms; who wouldn’t want a service priced at $20-$30 per user? Behind the low cost, however, remain a lot of questions. The amenities and services included with a public cloud platform can be limited (see previous sections above), and therefore, warrant a closer look by investment firms. While cost is and should be a significant factor in the decision-making process, it should not be the only factor and should be weighed in accordance with other considerations, many of which we’ve highlighted in this article.
Edge: There’s no real winner here. The reality is you get what you pay for regardless of which option you choose.