Hedge Fund Technology Outsourcing Options Abound

March 16, 2011

Hedge funds rely on a myriad of technology systems to maintain smooth operations, however, not all hedge fund technology components need to be managed and maintained in-house by a firm.  Outsourcing various components to an expert IT services firm provides numerous benefits in terms of efficiency, scale and cost savings.  That said, there are some things a firm may choose to keep in-house.  Often times the outsourcing decision comes down to internal resources and a cost-benefit analysis.

Let’s take a look at the IT elements of a hedge fund that can be outsourced.

  • Technology consulting (aka Virtual Chief Technology Officer) services to aid in aligning IT with business needs, operational and technical analysis, hedge fund technology roadmap development (long and short-term) and budgetary planning.
  • The help desk may be the most commonly outsourced  hedge fund technology function at a hedge fund.  A help desk is responsible for providing day-to-day support and troubleshooting for PCs/laptops, printers, telephone, networking, etc.  One advantage of outsourcing is that an IT expert is available 24x7x365 to help users and resolve issues quickly.
  • Disaster recovery (DR) is another commonly outsourced function, especially now that the Dodd-Frank Wall Street Reform Bill requires firms to “establish and maintain emergency procedures, backup facilities and a plan for disaster recovery.”Disaster recovery encompasses the steps taken to implement and support the infrastructure (i.e. hardware and software) necessary to make recovery of mission-critical services and applications (i.e. e-mail, trading, voice, file, and accounting) possible should an outage occur.  The steps to access up-to-date information and applications are established within DR.
  • Email & IM archiving is another function regulated under the Dodd-Frank Wall Street Reform Bill.  Under Dodd-Frank, an “organization shall maintain records of all activities related to the business of the facility, including a complete audit trail in a form and manner that is acceptable to the Commission and for a period of not less than five years.”An email and IM archiving outsourced service allows firms to easily save data for the amount of time prescribed by law and in a compliant WORM (Write Once, Read Many) format so that nothing can be changed or deleted.
  • Project and technology management services are often employed to support the IT build-out of a new hedge fund, during an office relocation or when a firm has a special project such as an installation or software/network upgrade.
  • Complete infrastructure outsourcing via cloud computing, where all hedge fund technology services from email, business applications and file services to voice and data protection are delivered by a managed service provider for a set monthly fee, is becoming an increasingly popular option for new hedge funds. It provides an enterprise-grade infrastructure at a fraction of what it would cost to build internally.  It also has the added benefits of fast ramp up time, low startup costs and expert management and support.
  • Application hosting allows a firm to outsource the management of an application and its infrastructure to a certified application hosting provider.  The benefits of this approach can include cost effectiveness, reduced environmental impact, complete redundancy, seamless scalability and simplified solution deployment.When considering application outsourcing it is important for a hedge fund to analyze factors such as giving up control, application speed/latency, security, application high availability, cost and the experience of the hedge fund technology provider.
  • Hosted Voice (PBX) and VoIP services eliminate large upfront capital outlays on voice equipment (i.e. PBX system) and come with an all-inclusive price that typically includes virtually unlimited calling, on-the-fly call redirect, redundancy, number portability and integration with Microsoft Outlook.  While a hosted voice solution will work for many, particularly smaller firms, the downside is that there is limited customization that can be done.  For a firm that requires advanced features an in-house voice system is often a better option.
  • Staff extension is particularly useful to supplement, replace or add value to in-house IT staff.  It is not uncommon for a firm to use staff extension services around major projects for circumstances such as when an internal IT manager is on vacation.

As illuminated by the list above, hedge funds have numerous options for fulfilling their hedge fund technology requirements.  Most hedge funds outsource at least some portion of their IT operations to a service provider.

However, which services are outsourced typically evolves as a firm grows.  For example, it is not uncommon for a hedge fund to start with a hosted voice solution and then move to an in-house system as their user requirements and staff size grows.

Mary Beth Hamilton is director of marketing for Eze Castle Integration, a leading provider of IT services, technology and consulting to hedge funds and alternative investment firms.  She has 12 years of technology and marketing experience and holds an MBA from Boston College. Eze Castle Integration supports the technology needs of over 550 hedge funds worldwide.

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