Is the Cloud a Viable Hedge Fund BCP/DR Solution?


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Originally posted in the August 2012 edition of Corgentum Consulting's Operational Due Diligence Insights.

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Is the Cloud a Viable Hedge Fund BCP/DR Solution?

  1. 1. Is the Cloud a Viable Hedge Fund BCP/DR Solution?Cloud computing based information technology and business continuity and disaster recovery("BCP/DR") solutions have becoming increasingly popular in recent years among the hedge fund andprivate equity communities. Indeed, many investors seeking to perform operational due diligence onfund managers may have come across more and more funds utilizing the cloud as of late.It is important for investors to understand exactly what the cloud is and both the challenges andopportunities it presents to fund managers, particularly in relation to BCP/DR.What is the cloud?In the context of evaluating fund BCP/DR infrastructures, thecloud can effectively be thought of by investors as an internetbased offsite solution.There are three types of cloud computing, all of which aretypically classified with the ending, "as a service." They are:  Platform as a service ("PaaS") - under this model service providers provide a computing platform solution to funds such as an operating system or web server.  Software as a service("SaaS") - this model allows funds to run and access applications on cloud based servers.  Infrastructure as a service ("IaaS") - under this model service providers offer funds access to virtual machines, storage space and data centers via the internet.How do fund managers utilize the cloud for BCP/DR planning?Hedge funds and private equity funds are increasingly incorporating cloud based components intotheir BCP/DR plans in several ways:  Data storage - increasingly it is cost effective for firms to archive data offsite on cloud based servers. This reduces expenditures on new servers and frees up office space for other equipment and personnel  Data backup - Cloud based data storage centers typically serve a high volume of customers and are therefore designed to handle large scale data transfers. These facilities are also typically designed with BCP/DR planning in mind, and may be more robust in both equipment and design than an individual fund manager’s system  Application backup - Fund managers may utilize cloud based solutions to serve as a backup location from which applications could continue to be run, in the event of a business disruption or disaster type event. The continued operation of applications during such an event may be particularly critical for quantitative or high-frequency trading strategies.
  2. 2. What should investors ask their fund managers about the cloud?The cloud presents a number of attractive benefits to fund managers. As part of an evaluation of ahedge funds BCP/DR planning, investors should take the time to understand how their fundmanagers may make use of such technologies. Some key issues investors may want to consideraddressing include:  What measures has the hedge fund taken to evaluate the BCP/DR planning procedures of the cloud provider?  How does the hedge fund monitor the testing and oversight of the BCP/DR plan at this provider?  What measures has a hedge fund taken to address security concerns related to storing data and running applications at third-parties?  Does the fund manager incorporate testing of access to cloud based data and applications as part of its own BCP/DR tests?  Has the fund evaluated the cost benefit analysis of utilized cloud based technologies versus bringing such technologies in house? At what point would any cloud benefits be outweighed by internal cost considerations?While the increased use of the cloud may be the hottest trend among hedge funds for BCP/DR datastorage and application development. Investors should take care to understand if a hedge fund hascarefully evaluated their use of this new technology, or if they are simply jumping on the bandwagon.Originally posted in the August 2012 edition of Corgentum Consultings Operational Due DiligenceInsights.For More info@corgentum.comInformation | Blog | Twitter Feed Tel. 201-360-2430About Corgentum Consulting:Corgentum Consulting is a specialist consulting firm which performs operational due diligencereviews of fund managers.The firm works with investors including fund of funds, pensions, endowments, banks ultra-high net-worth individuals, and family offices to conduct the industrys most comprehensive operational duediligence reviews. Corgentums work covers all fund strategies globally including hedge funds, privateequity, real estate funds, and traditional funds. The firms sole focus on operational due diligence,veteran experience, innovative original research and fundamental bottom up approach to duediligence allows Corgentum to ensure that the firms clients avoid unnecessary operational risks. ©2012 Corgentum Consulting, LLC