The increased use of cloud-based services is undeniable. Analyst firm Forrester forecasts that the global market for cloud computing will grow from $40.7 billion in 2011 to more than $241 billion in 2020. The advantages of using “the cloud” include the ability to:

• Quickly implement and use enterprise-grade technology systems and applications without employing a dedicated IT team;
• Outsource management and maintenance of technology to third-party experts responsible for ensuring continuous availability and high performance levels;
• Transition technology spending from capital expenditures to operating expenditures; and
• Easily scale technology environments to match business needs – eliminating the need to over or under buy when forecasting business growth.

When weighing adoption of cloud-services, it is important to understand the difference between cloud deployment models, namely public and private clouds.

• Public clouds are owned and operated by third-party service providers and benefit customers by delivering cost-savings derived from economies of scale. While competitively priced, public clouds aren’t always the best option for firms that require custom configurations and applications or desire high-touch service from support staff that understand the financial services market and associated technology.
• Private clouds are those that are built exclusively for an individual enterprise and can minimize concern around resource availability, security and resiliency. In the private cloud category, there are two flavors – on-premise and externally hosted.

An on-premise private cloud is generally known as an “internal cloud” that is hosted within an organization’s own data center. An externally hosted private cloud is, just as the name indicates, hosted and managed by an external cloud computing provider. Externally hosted private clouds are a popular choice for hedge funds as they allow for greater customization and flexibility while still providing compelling cost-savings.

Beyond the types of clouds, the cloud-based services market is frequently divided into three subcategories based on the services delivered. These categories are: Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS). Of these, IaaS and SaaS are gaining the greatest traction and interest in the hedge fund market.

• In the SaaS model, an application is hosted and managed by a vendor or service provider and made available to users via the Internet. Customers share all or part of an application but do not control the underlying platform or infrastructure.
• PaaS is the delivery of a computing platform via the cloud. The PaaS model enables hedge funds to build and test applications without incurring the cost and complexity of buying and managing the underlying software/hardware.
• IaaS provides computing resources without requiring a firm to purchase physical hardware such as storage, servers and networking equipment. Many IaaS providers bundle the infrastructure services with business applications, such as Microsoft Exchange and Office, to deliver a complete solution. With IaaS, customers can control processing power, networking components, the operating system, storage and deployed applications, but do not control the underlying physical infrastructure.

Cloud-based services aren’t right for every hedge fund, but the potential value delivered via the cloud makes it essential that firms become knowledgeable about their technology options.

About the Author
Mary Beth Hamilton is director of marketing for Eze Castle Integration (www.eci.com), a leading provider of IT and cloud computing services, technology and consulting to hedge funds and alternative investment firms. She has over a decade of technology and marketing experience and holds an MBA from Boston College.