The following article is part of Eze Castle Integration’s Hedge Fund Insiders Article Series, which featured articles on a range of important topics. Today we look at technology (one of our favorite topics!).
Technology was historically an afterthought for many hedge funds and a “check-the-box” item at that. Many firms took the approach that they could get away with the bare minimum on the technology front, often overlooking the reality that technology today is a critical component to a hedge fund’s daily operations.
Today’s hedge funds are generally embracing the role technology plays in investment management operations. In fact, in today’s competitive landscape and with investors expecting more than ever from funds, technology has really emerged as a competitive differentiator and an asset that can help grow a firm’s business.
2015, specifically, has posed its challenges for hedge funds and investment firms, as the Securities and Exchange Commission (SEC) and the investor community as a whole have highlighted cybersecurity as one of the most critical areas of focus. Beyond security, hedge fund startups continue to face challenges as they look to keep pace with their established competitors and make their own impression on the marketplace.
From a technology standpoint, we’ve identified three top priorities for hedge funds and investment management firms looking to find startup success.
Pick the right hedge fund service providers.
Experts will agree this is one of the most critical decisions a startup will make. When it comes to a firm outsourcing any of its needs – whether that be technology, administration, accounting, etc. – it is imperative that firms do their due diligence in choosing providers that can meet the unique requirements. In order to find success, firms should look to enter into trusted partnerships with key service providers – engagements that offer open lines of communication, flexibility and ultimately trust and accountability.
Know your firm’s vulnerabilities and exposures.
Cybersecurity is the single most talked about area of technology right now, not only for hedge funds, but for businesses of all kinds. At a minimum, an investment firm – and not just its IT provider – needs to understand the potential risks that could affect the business and what safeguards are in place to protect those assets.
With both regulators and investors asking thoughtful and intelligent questions with regard to cybersecurity, funds must have a thorough understanding of the hedge fund cybersecurity threat landscape and employ comprehensive strategies to mitigate risk across the firm.
Select an infrastructure solution your firm can grow with.
This is one of the most common mistakes new launches make. Many funds assume since they are just starting out, they only require the bare minimum in terms of technology. They are thinking about now; but what they aren’t thinking about is what will happen down the road in two, three or five years.
Some might argue that thinking too far ahead could be detrimental to the firm and set them up for imminent failure. The reverse, however, is equally as concerning. Odds are, if a firm is performing well after the first couple of years, it is going to outgrow its current IT system and, therefore, require a much more complicated transition. By taking the time initially to think through what the firm’s needs will be down the line and implement systems that can grow along with them, the startup is in much better shape to minimize the time and money they spend on technology in the future.
Check out the complete Hedge Fund Insider’s Article Series HERE.