Technology

Conclusion

Conclusion Ten years ago, the only logical solution for a hedge fund manager looking to build up its data storage capacity would be to do so in-house. Security was the watchword and that remains the case, but over the last decade the data storage industry and hedge funds’ relationship with it has gone through a…
October 2017

Report Overview

Conclusion

Ten years ago, the only logical solution for a hedge fund manager looking to build up its data storage capacity would be to do so in-house. Security was the watchword and that remains the case, but over the last decade the data storage industry and hedge funds’ relationship with it has gone through a significant transformation. From not even countenancing the notion of external storage, most managers now utilise third-party data centres and/or the cloud. Some firms, wary of third-party risk, still insist on keeping their data in-house for fear of a breach, but as new managers come forward and older firms re-evaluate their data storage needs the picture is changing.

Where once a manager had their primary site in-house and a back-up in a third-party facility, this is giving way to having a primary site in an external centre and their back-up in the cloud. Indeed, the cloud itself is gradually becoming ubiquitous, not just in the workplace, but also in people’s daily lives, leading to more and more hedge fund firms becoming comfortable using one of the many public providers better known in the retail market. Investors, however, are yet to be convinced.

Reassuringly, managers now see fewer differences between the concepts of internal and external storage. Security, reputation and cost are the top three considerations in both cases, although beyond this trinity other considerations come into play for third-party data centres and the cloud. Location and connectivity are key for those looking at third-party data centres, while scalability and the availability of bolt-on applications are what managers look for in a cloud provider.

Based on the results of our survey and research interviews, the Insights team expects that in the next five years the public cloud will become the primary data storage location for the majority of firms, and in-house infrastructure will gradually fall away. As one CTO the team interviewed said: “Now is the right time to adopt the cloud. Two years ago would have been too early and two years from now will be too late.”

 

Exhibits and Citations

Section 1 – Internal vs external

Exhibit 1.1: Hedge fund managers with internal and external physical data centres, 2017, HFM Insights (Page 8)

Exhibit 1.2: Primary means of data storage among hedge fund managers, 2015-2016, HFM Technology (Page 9)

Citation: H1 2017 U.S. Data Center Trends Report, CBRE (Page 9)

Exhibit 1.3: Hedge fund managers’ greatest concerns about third-party data centres, 2017, HFM Insights (Page 10)

Citation: Zombie/Comatose Servers Redux, J. Koomey and J. Taylor, Stanford University, 2017 (Page 10)

Exhibit 1.4: Timeline of notable data centre outages, 2015-2017, HFM Insights (Page 11)

Citation: USA Blackout Tracker Annual Report, Eaton, 2017 (Page 11)

Exhibit 1.5: Causes of unplanned outages at global data centres, 2010-2016, Ponemon Institute (Page 12)

Exhibit 1.6: Hedge fund managers running key systems from their back-up centre(s) during working hours, 2017, HFM Insights (Page 13)

Section 2 – Physical vs cloud

Exhibit 2.1: Data storage solutions by manager type, 2017, HFM Insights (Page 15)

Citation: Essence of Enterprise, 2017, HSBC Private Bank (Page 15)

Exhibit 2.2: Most important considerations for managers when choosing a physical data centre, 2017, HFM Insights (Page 16)

Exhibit 2.3: Most important considerations for managers when choosing a cloud provider, 2017, HFM Insights (Page 17)

Exhibit 2.4: Cloud solution providers used by hedge fund managers, 2017, HFM Insights (Page 18)

Citation: Optimize Cloud Costs Through Governance and Collaboration, Enterprise Management Associates, RightScale, 2017 (Page 18)

Exhibit 2.5: Number of physical data centres used by each hedge fund manager, 2017, HFM Insights (Page 19)

Exhibit 2.6: Cloud challenges for small businesses, 2016-2017, RightScale (Page 20)

Citation: State of the Cloud 2017, RightScale (Page 20)

Section 3 – Migration to the cloud

Exhibit 3.1: Data storage solutions by longevity of manager, 2017, HFM Insights (Page 22)

Exhibit 3.2: Length of time hedge fund managers expect their current data storage solution to meet their needs, 2017, HFM Insights (Page 23)

Citation: Implementing the Cloud Security Principles, National Cyber Security Centre, 2016 (Page 23)

Exhibit 3.3: Hedge fund managers that use cloud-based data storage solutions, 2017, HFM Insights (Page 24)

Exhibit 3.4: The business functions hedge fund managers run from the cloud, 2016, HFM Technology (Page 25)

Citation: FG 16/5 – Guidance for firms outsourcing to the ‘cloud’ and other third-party IT services, FCA, 2016 (Page 25)

Citation: SEC Charges Investment Adviser With Failing to Adopt Proper Cybersecurity Policies and Procedures Prior To Breach, SEC, 2015 (Page 25)

Exhibit 3.5: Biggest problems small businesses face when migrating to the cloud, 2015, Tab (Page 26)

Exhibit 3.6: Hedge fund managers that use third-party data centres to test new investment strategies and/or financial models, 2017, HFM Insights (Page 27)

Citation: State of the Cloud 2017, RightScale (Page 27)

 

About HFM Insights

HFM Insights is the new research and analysis service from Pageant Media, sitting within the company’s hedge fund intelligence network, HFM. The division produces research reports and analytical articles on a variety of topics in the global hedge fund industry, including business operations, investor relations, technology and regulation. Leveraging Pageant’s wealth of data and news sources, and with access to the HFM network’s vast membership, HFM Insights is uniquely positioned, offering exclusive surveys and expert commentary.

Report authors

James Sivyer
Senior Research Analyst
+44 (0) 20 7832 6648
j.sivyer@pageantmedia.com

Stuart M. Kinnaird
Research Analyst
+44 (0) 20 7832 6605
s.kinnaird@pageantmedia.com

www.hfm.global