Disaster Recovery Considerations for Hedge Funds

September 15, 2011

For many firms, hedge fund disaster recovery remains an Achilles’ heel – an expensive and seemingly distracting proposition. But planning for potential disruptions and taking the right steps to develop a comprehensive, customized IT disaster recovery plan will allow your firm to be fully prepared for unexpected events.

What factors should you take into consideration when establishing your disaster recovery plan? Here are a few to get you started.

Capital Costs: What is the Right Economic Choice?

When it comes to disaster recovery for hedge funds, the specific requirements for each firm will often differ. Your firm’s preparations for disaster recovery should reflect the unique underlying business requirements that will directly shape your budgeting decisions.

Hardware, software and other necessary disaster recovery requisites can be costly for hedge funds, particularly small firms or startups looking to minimize capital expenditures. In some cases, firms may opt to outsource disaster recovery to a qualified managed service provider. Before pursuing this option, funds should conduct a thorough evaluation to determine whether it makes more sense to outsource disaster recovery to a third-party or manage this function in-house.

In general, the up-front capital costs of setting up a hedge fund disaster recovery solution are roughly equivalent whether you choose to outsource or undertake this task in-house. However, the investment and labor hours required to maintain and manage a disaster recovery system internally on an ongoing basis are typically higher. These costs can vary depending upon your firm’s unique approach, and they should be taken into careful consideration when evaluating disaster recovery options.

Key Factors: What are Your Recovery Requirements?

Two of the most important factors you will need to need to consider when designing your firm’s disaster recovery system are your recovery point objective (RPO) and recovery time objective (RTO).

RPO is the point in time to which you must recover your data as defined by your organization. RPO generally refers to what your organization determines is an “acceptable loss” in a disaster situation. RTO is the duration of time within which a business process must be restored after a disaster in order to avoid unacceptable consequences. The RTO includes the time for trying to fix the problem without a recovery, the recovery itself, tests and the communication to users.

Once you’ve identified your RPO and RTO, you can properly determine what kind of disaster recovery solution is going to best suit your needs, whether it be nightly backups or high-availability, continuous replication. With this information, you will be able to customize a disaster recovery plan to suit your firm’s needs.

Evolving Disaster Recovery Solutions for Data Protection

Hedge funds are increasingly turning away from tape backup to online backup services that can ensure data is replicated and stored in secure offsite locations—whether it be the firm’s disaster recovery site or a site operated and managed by a third-party vendor. Online backup technology is available in varying levels to accommodate the needs of firms of all sizes and budgets.

With online backup, data can be replicated to a remote facility on a fixed schedule (i.e. once per day, at set intervals throughout each day, etc.). Data is automatically sent to an offsite location and retained for a set period of time. In terms of reliability and recovery, online backup is traditionally a better choice than the notoriously unreliable tape backup method.

Online backup, however, is not without its faults. Typically, online backup pricing is based upon two factors: the amount of data being protected and the length of retention. Therefore, as firms add more data and store it for longer periods of time, the cost increases exponentially. Tape backup, alternatively, is relatively inexpensive.

A third option for hedge funds is data mirroring, which provides near real-time data replication. Data mirroring can be done on the server level, between individual production and disaster recovery hot-spare server pairs, or between two storage area networks (SANs), one in production and one at the disaster recovery site. Data mirroring solutions deliver high recovery point objectives (RPOs) and recovery time objectives (RTOs) and are, therefore, considerably more expensive than tape or online backup solutions. The most significant benefit of data mirroring, though, is that end users are able to easily access their data, features and functions in order to quickly resume operations after an outage.

Data Protection: Tape is Not Enough

Although the minimal cost associated with tape backup is often appealing, as a viable solution it falls short for hedge funds and investment firms looking for secure and reliable disaster recovery as part of a full-scale business continuity plan. As a result, many firms are adopting a hybrid approach, whereby data required for short retention periods is replicated to an online solution and data destined for longer archiving is saved to tape and stored offsite.

Consider some of the uncertainties and questions that arise with using tape as the sole data backup strategy:

  • Are the drives and equipment at the offsite location compatible with your tape format?
  • Assuming you have compatible systems, will the tapes index and restore correctly to achieve a successful recovery?
  • Have you produced a quality backup?
  • Where is the data being stored? If it is not offsite, the backup version may not be helpful if the data center is destroyed or inaccessible.
  • In the event of a disaster, how quickly can you access our data on the tape and become operational?

Application Protection: What are the Options?

Whether you select online or tape backup, if a disaster does occur, you will need a location to which you can restore the firm’s application data as well. Additionally, you will need to consider which servers are available to run the applications.

Proven methodologies for application protection include:

  • “Hot standby” – having the application pre-installed at a remote site and running simultaneously to primary site, so that you can switch over to it should the primary site become inaccessible.
  • “Warm standby” mode – having a secondary application idling in the background of the primary system, so that it is available for installation should the primary application become inaccessible or unusable.
  • Storage Clustering – grouping applications such that if one fails, others can be used in its place

Hot Sites & Remote Sites

Regardless of the approach, a hedge fund disaster recovery strategy should include a “hot site” or remote site that replicates your firm’s current IT environment and enables your employees to remain operational during a disaster to prevent costly downtime.

Both hot and remote sites serve as secondary disaster recovery sites, but the differences between the two are crucial to understand when weighing your decision. A hot site provides a secondary instance or replica of your IT environment that your firm’s employees can securely access and use remotely from anywhere through standard Internet connections. In other words, it is a secondary office where employees would go in the event of a disaster to conduct business just as they would in the office. A remote site is a remote physical location where firms can maintain copies of all critical systems, such as trading applications, data and documents.

Selecting the right disaster recovery solution can protect your hedge fund’s data and reputation while boosting investor confidence and creating a competitive advantage in the industry. Each fund has its own unique requirements when it comes to disaster recovery. Be sure to consider all options and alternatives when choosing which strategy will be a best fit for your firm.

About the Author

Bob Guilbert is managing director of products and marketing at Eze Castle Integration. With more than 20 years of IT experience, Bob is responsible for leading all of Eze Castle’s marketing, partnership and product development functions. The scope of his efforts ranges from maximizing the value of the company’s brand, to establishing core strategic partnerships and developing new product lines for the company.

Eze Castle Integration supports the technology needs of over 550 hedge funds worldwide. You can register for free access the ECI’s Hedge Fund Disaster Recovery Knowledge Center, which includes a comprehensive guidebook, a webcast on “Meeting the Institutional Investor’s New Requirement,” a whitepaper on Business Continuity Planning: A Proven Approach for Hedge Fund & Investment Firms, and a podcast on disaster recovery and business continuity for Hedge Funds.

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