Launching a Hedge Fund: Technology Considerations
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  • Introduce Eze Castle Integration:Founded in 1995Offices across the world, including 8 offices in the U.S. and locations in London, Geneva and SingaporeOver 600 hedge fund and alternative investment clientsServices and solutions to meet the needs of hedge funds and alternative investment firms; everything from PCs and critical infrastructure to backup and storage solutions, to business consulting and project management
  • Infrastructure design options for hedge funds
  • Advantages of hosted platform:Platform – Provides a fully managed, all-inclusive IT solution, reducing CapEx & OpEx.Reliable – Built on a robust, high-performance infrastructure that is professionally managed and maintained by Eze Castle 24x7x365Secure – Extremely redundant and secure featuring built-in security, anti-virus, anti-spam and an advanced monitoring system.Flexible – Client only for the resources needed to meet current needs and can add more resources on demand to support growth. 3rd party add-on services / solutions can be added to customize solution
  • There are many different types of hedge funds who employ many different strategies, so there isn’t a “one size fits all” approach to cloud computing and infrastructure. Some funds might have different requirements for different systems. For example, a fund might have high speed/high availability requirements for its trading system, but these requirements may not be as important for something like its CRM system. I would encourage folks to consider the following items in their SWOT analysis of whether cloud computing is right for them:Cost of ownership: Is the cloud actually less expensive? I encourage everyone to do a cost analysis before moving systems into the cloud and consider this in your SWOT analysis. It might appear less expensive in the short-term, but might not necessarily be reducing your costs in the long-term when you factor in life of equipment, and other infrastructure variables.Control: Outsourcing the management of your systems may lead to erosion of firm knowledge due to the outsourcing of maintenance. This might be okay for certain systems, but not all. It really boils down to your comfort level. Also, you may not have control over maintenance schedules and the like, so it is important to understand what types of events you may not have control over. Make sure that you choose a provider who can be flexible given your business requirements. Speed: What is your firm’s tolerance for latency? Moving different types of systems into the cloud could result in milliseconds or potentially seconds of latency. Different types of funds might have differing opinions on “acceptable” levels of latency for their systems. For example, a high volume day trading shop will have zero tolerance for any latency in their trading systems. It is important to establish a firm-wide consensus for your each of your systems.Security: You may have less control over the security of the data in the cloud. First and foremost, you need to trust the service provider that you are working with, and you should be sure to perform due diligence into the types of security employed (physical security at the data center, hardware level controls, as well as software systems deployed). Many firms I have spoken with are uncomfortable with moving sensitive data outside of the four walls of their office, so it is important that you have confidence in the provider’s security.High Availability: A good business continuity plan is critical when you are hosting applications in the cloud. Be sure that the service provider can offer you the same level of BCP that you currently have in place—if not better. You should try to gain deeper insight into things like:How are back-ups managed?What are the redundancy options in the event of a hardware failure?What are the disaster recovery options?What tier class is the data center, and is it sas-70 certified?Familiarize yourself with the different tier-classes for data centers in order to understand which tier meets your firm’s minimum requirements. It is important to understand the technology that these providers employ, and how flexible they can be to meet your requirements.Scalability/Flexibility: One of the key benefits of cloud computing is scalability—the ease of quickly adding additional computing units for processing, memory, storage, and networking. How quickly can the provider increase the capacity for these different areas, and are there any upper limits? Systems Integration: Will there be any limitations or performance issues while your applications are in the cloud? For example, will you be able to use your preferred market data vendor for certain systems? Will there be any bandwidth constraints that could contribute to latency on FIX or market data connectivity? You should perform a thorough review of the integration between your systems and make this a consideration in any planning.
  • As a new hedge fund, you have a bewildering array of choices for where to house your firm. You could work from a home-based office, sublease a portion of space from another business, or lease an impressive office space in a prestigious business location. The selection of office space involves a consideration of the projected capacity of your business’ growth, its accessibility for your clients, and the economic expense of carrying a long-term lease on your financial statements. Rent expenses can be significant and vary depending on the location of your desired office.Securing your office is not only one of the largest initial expenses you can incur as a business owner, but it also signifies a long-term financial commitment. Managers typically have a few standard choices to consider:Executive SuitesHedge Fund HotelsSubleaseIndependent commercial office spaceThere are benefits and drawbacks to each of these options, and the manager should carefully consider pricing, convenience, scalability, and terms of leasing agreements before signing off on any of them.
  • We could dedicate an entire event to the topic of disaster recovery and business continuity planning, but for today’s purposes I’m going to touch on them at a high level to help you understand where they fit within your hedge fund.The primary objectives of a business continuity plan and disaster recovery system are to minimize potential financial loss, allow for continued service to clients and partners, and diminish negative effects of disruptions on a firm's strategic plans, operations, market position, and reputation. Investors are becoming increasingly more stringent in vetting a firm’s business and IT practices; they are expecting firms to have comprehensive and tested plans and procedures in place and requesting to see a firm’s plans and practices during routine pre-investment due diligence audits.It is important to understand the difference between a Business Continuity Plan (BCP) and Disaster Recovery (DR), as they deliver complementary yet unique capabilities to a fund. DR encompass the steps taken to implement and support the infrastructure (hardware, software and sites) necessary to make recovery of mission-critical services and applications possible. The steps to access up-to-date information and applications are established with DR. A business continuity planning makes use of the infrastructure addressed in the DR Plan, but focuses on business operations and understanding such items as: What are the mission-critical processes?Who are the key personnel?How are they going to be notified of an emergency?Where/how will they continue to operate?
  • Two of the most important things you will need to know are your firm’s recovery point objective (RPO) and recovery time objective (RTO). Once you know your RPO and RTO, you will be able to customize a disaster recovery plan to suit your firm’s needs.  RPO is the point in time to which you must recover your data as defined by your organization. Your RPO is generally 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/disruption 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.
  • To create an effective business continuity plan, a firm should take these 5 steps:The first step is a Risk Assessment. This phase includes:Physical on-site security and walkthroughsReviewing physical and network single points of failureEvaluating the impact of various business disruption scenariosDefining the probability of occurrence based on a rating systemPrioritizing findings and Developing roadmap From there we move into the Business Impact Analysis (BIA). During this phase we collect information on:Recovery Assumptions (RPO, RTO)Critical Business Processes and Workflows as well as the supporting production applicationsInterdependencies both internal and external Critical Staff including backups, skill sets, primary and secondary contactsFuture Endeavors and Any Special Circumstances that should be considered Step three centers on Plan Development. This phase includes:Obtaining exec sign-off of business impact analysisSynthesis of Risk Assessment & BIA findingsDeveloping department, division and site level plans andReviewing with key stakeholders and finalize plans From there we move to Plan Implementation which centers on distributing the plan to all key stakeholders and conducting training sessions to help ensure employees are comfortable with the steps outlined in the plan. The final critical element of a BCP is ensuring that it is tested and maintained on a regular basis. This includes:Conducting periodic table top / simulation exercises as well asConducting bi-annual plan reviews and annual Business Impact Assessments
  • Email and instant message (IM) archiving is essential to proving compliance with the many rules and regulations to which hedge funds are subjected. The Federal Rules of Civil Procedure relating to electronically stored information requires hedge funds to be able to supply things such as emails, IMs, Bloomberg Mail and IMs, documents, spreadsheets, and PDFs if requested. Email and IM data should be saved for the amount of time prescribed by law. Data should be stored in WORM (Write Once, Read Many) format so that nothing can be changed or deleted. Records need to be indexed in searchable files to aid in providing only the information that is requested. The best way to store data is on its own offsite server, accessible via the Internet.
  • Investors want to know where management fees are being allocated. I am going to focus in on technology as its often a significant cost in terms of achieving operational efficiencies as well as effective in the due diligence process to your clients. Accept the fact that there isn’t a cookie cutter solution for every firm out there. As investors meet with your firm, you are looking to differentiate yourself from your competitors and technology can be used as a tool to achieve this. By understanding what your firms need are going to be short and long term, you should be able establish a working budget for running your firm both in the short and long term.Without envisioning how your practice will look over the longer term—in three or five years—you may be setting yourself up for some short-sighted solutions. Despite your intense focus on completing the immediate tasks of launching your fund, understanding what your firm will look like in the future is important as well. If your fund grows significantly, will you have the necessary technological systems to support that larger business?Be careful not to fall into the trap of failing to understand how much you rely on technology today. Think about the work flows and systems you use to complete your work (be it email, reports, phones, market vendor applications, and/or risk systems.) Now, think about the work that will need to be done if those systems cannot scale or don’t exist in case of a disaster. More than likely, you will need most, if not all, of the same systems, including additional ones to grow your firm. Use this list as a shopping guide when growing out your technology platform as well as managing your technology budget. Your technology partner should be able to closely quantify both your near time and long term spends. One final item to focus on with your technology partner is, be open to change, just because you’ve always used one system, you may be able to get additional functionality from another system, a seasoned technology vendor should constantly be engaged with you on better products from a process, functionality and cost basis.
  • It may seem challenging to run your own business, particularly if you have become accustomed to the standards and methods of analyzing and processing your work through proprietary technology systems as an employee of a large firm. When confronted with the vast number of choices for your own firm, it is easy to become overwhelmed and end up with a less than optimal technology choice. We have identified five common mistakes that managers make and what you can do to avoid them.#1: You want the perfect solution, and you will not rest until you find it.Your business life would certainly be a lot easier if you could buy a solution that met 100% of your technology needs. Undoubtedly, you will meet a vendor or two you will promise you such a thing. The truth is, a successful approach to technology planning usually means negotiating, purchasing and deploying systems from multiple vendors and service providers. And the more complicated your business, the more technology providers you may require to fulfill your needs.  Be wary of the small, new firms offering all-in-one solutions. Will they be around in the years ahead to stand behind the promises they make today?  #2: You are so focused on today’s to-do list, you have not considered the future beyond your launch. Today, you have a new fund—a young company with what are perhaps modest needs. If you select your technology for the business you have today, you will likely find yourself re-making these decisions within three to five years. before you commit to any technology solutions, envision how your practice will look in the long term.  An important question to consider today is whether the decisions you make for your firm pre-launch will support your business as it grows. #3: You haven’t fully considered the multiple roles technology plays in your current work environment.In your current or previous working life, perhaps you had the luxury of an IT department or professional who made sure technology did all the jobs you needed it to. You didn't have to think about solutions in the way you do right now. Consider the work you do or did as an employee and take note of which systems supported that work. You will need email, phones, quote feeds and other technological support in your new hedge fund, and perhaps, additional systems you did not encounter in your previous situation.  #4: You believe you can manage a new hedge fund AND all of its technology needs on your own. If professional tech support is not on your list of needs before launching your fund, add it now. Your new firm will require IT assistance to build servers, manage networks and handle day-to-day needs. If you prefer, you can outsource project-related work to consultants or contractors, and there are third-party providers whom you could contract for ongoing maintenance. However, before selecting an outside option, consider hiring a full-time professional. #5: You’re tempted to decline the training options on your IT systems. Most vendors offer some sort of training to accompany their products. You should take them up on these offers! Once you’ve rolled out your new systems, you need to learn how to use them. This training exists to enable you to maximize your investment. Additionally, ask vendors about user groups, which can be invaluable resources for easing frustration as you adopt multiple unfamiliar systems.
  • There are of course, many other issues and solutions needed to start up a hedge fund, but these are the most important, essential strategies for a successful one. Along with the key strategies needed for hedge funds, here are a few other pieces of information to take away from this presentation. Uptime is a top priority for hedge fund CTOs and downtime is unacceptable. Knowing the losses that can occur during a downtime will help to understand the risks faced and the importance of taking the necessary steps to prevent and protect against downtime.Plan for future growth.Identify primary, critical, and secondary applications and business processes for your firm. By doing so, technological functions can be optimized while still retaining a cost-efficient budge.The last point is that one size does not fit all. For issues, the size of your company does not affect the solution needed, but in most cases it is best to have security and planning customized to fit the scale of your business in order to obtain the most solid system.


  • 1. Launching a Hedge Fund: Technology Considerations Steve Schoener Vice President of Client Technology
  • 2. Agenda Technology Considerations – Infrastructure – Telecommunications – Real Estate – Disaster Recovery & Business Continuity Planning – Compliance & Archiving Technology Budget Common Technology Mistakes Key Takeaways
  • 3. Technology Infrastructure Investment firms can choose from on-premise solutions or public, hybrid or private cloud services. Hybrid Cloud Private Cloud Services Public Cloud The Cloud On-Premise Installation
  • 4. On-Premise vs. Hosted Infrastructures Eze Private Cloud Services Traditional InstallationDelivery Fully Managed & Hosted On-PremiseTurnaround < 3 weeks 4 – 6 weeks Subscription Perpetual OS/Application Licensing +Pricing (All Inclusive) MaintenanceCost Expensed CapitalizedAllocation (Over Time) (Upfront) CustomizationAdditional Additional Users & Resources Updates/UpgradesCosts Desktop Support Maintenance Ongoing SupportPlatform Multi-Applications & OSUpdates Shorter – Invisible – Defined Larger – Frequent – Ubiquitous
  • 5. Cloud Computing Considerations Cost of Ownership Control Speed Security Availability Scalability/Flexibility Systems Integration
  • 6. Additional Infrastructure Options With an on-premise technology solution, your firm has two options: – Build and maintain your own Communications Room – Host your infrastructure in our data center(s) Infrastructure security layers should include: Client Site ISP EdgeDesktop Server LAN Firewall Router Router
  • 7. Telecommunications Categories to Consider: – Internet service – Point-to-point – Phone & voicemail • VoIP – Market data services
  • 8. Real Estate OptionsOffice Facilities Determine spacing needs Explore options – Executive Suites – Hedge Fund Hotels – Sublease – Independent commercial office space
  • 9. Disaster Recovery & Business ContinuityPlanning
  • 10. Disaster Recovery Objectives Recovery Point Recovery Time Objective (RPO) Objective (RTO) – The point in time to – The duration of time which you must recover within which a business data as defined by your process must be restored organization after a disaster RPO = 24 hrs RTO > 24 hrs • Nightly Backups • Restore from Backups RPO < 4 hrs RTO < 4 hrs • Snapshots • Hot Standby RPO = 0 RTO = 1 hr • Continuous Replication • High Availability
  • 11. Five Steps to Business Continuity Planning Risk Assessment Business Plan Test & Impact Maintain BCP Analysis Life Cycle Plan & Plan Implement Creation
  • 12. Compliance & Archiving Retain emails and IMs for prescribed amount of time by law Store data in WORM format Allow for searchable indexing of files
  • 13. Technology BudgetEnterprise Infrastructure - Data + Networking Year 1 Year 2Hardware and SoftwareEmail, IM & Bloomberg ArchivalProject LaborTotal Enterprise Infrastructure - HardwareEnterprise Infrastructure - Voice Year 1 Year 2Avaya Voice Hardware & LaborTotal Enterprise Infrastructure - VoiceEnterprise Infrastructure - 3rd Party Services Year 1 Year 2Central Copier - Multifunctional CopierBlackberry Voice & Data ServiceBloomberg UsersVerizon PRI Usage Including TaxesTotal Enterprise Infrastructure - ServicesEnterprise Infrastructure - Circuits Year 1 Year 2ISP AISP BISP 1 - PRIISP 2 - POTSBloomberg CircuitTotal Enterprise Infrastructure - CircuitsAdditional Services Year 1 Year 2Disaster RecoveryMonthly ServiceTotal Enterprise Infrastructure - Misc.TOTAL EXPENDITURE
  • 14. Common Technology Mistakes …. and how to Avoid themLooking for the perfect solutionInsufficient planning for the futureUnderestimating technology dependenciesOverestimating your capacity tomanage technologyShortchanging the trainingoptions and resources
  • 15. Key Takeaways Uptime is top priority – downtime is not acceptable. – Understand the risks your firm faces. Plan for growth. Identify your firm’s primary (critical) and secondary apps and business processes. – Knowledge = cost-effective and optimized technology Remember one size does not fit all. – Understand your options and make sure your technology provider is prepared to scale with you.
  • 16. Thank You Contact Info: Steve Schoener Vice President, Client Technology Eze Castle Integration 212-954-0738 sschoener@eci.comResources:• Hedge IT Blog• Knowledge Centers• SlideShare Presentations