How hybrid cloud solutions can benefit hedge fund operations

The adoption of cloud solutions is increasingly widespread among the industry. Opting to integrate a public or private cloud into the business brings with it a myriad of considerations including security, cost and functionality, so deciding on the right solution fit to the firm’s needs is vital.

Consequently, more and more firms are looking for a balance between the two. HFMTechnology speaks with VMware’s Gavin Jackson, former hedge fund CTO Ian Bowell and Ray Bricknell from niche specialists Behind Every Cloud to explore the growing trend of the hybrid cloud and asks how such a solution can benefit hedge fund operations.

HFMTechnology (HFMT): Do you see a trend with hedge fund CTOs seeking greater virtualisation of architecture across the firm?

Gavin Jackson (GJ): Virtualisation has been one of the most disruptive, transformative forces of our generation. Many of our customers are now highly virtualised, and we are seeing them continue to invest in higher value capabilities such as management, automation and cloud. In particular, extending that heavily invested in-house infrastructure to a trusted public cloud, to take advantage of business and IT benefits is a 2015 priority. A hybrid cloud deployment is emerging as the model of choice.

Ray Bricknell (RB): For many hedge funds, the march toward complete virtualisation that started at the beginning of this millennium is a trend now largely complete. We only really come across two key areas of exception now. The first is for highly demanding SQL databases that are supporting things like business intelligence workloads and it is our view that within the next tech refresh cycle these environments will also yield to the significant benefits that virtualisation offers.

The second is within funds that operate algorithmic, systemic and low latency models, where every nanosecond in each processing cycle counts. These funds will remain the domain of the specialist high tech engineer and I suspect for some time will remain “as close to the tin” as possible.

Ian Bowell (IB): Virtualisation of server workloads is ubiquitous at this stage, but the benefits of VDI are yet to be felt across the wider hedge fund industry. We still have the odd multi-core high memory bulky database application holdouts, where a virtual machine : host ratio of 1:1 or 1:2 doesn’t make sense unless a decent resilient farm exists, and we can’t migrate without suffering from over utilisation and insufficient resource margin.

So where done properly, server virtualisation is complete. But desktop and mobile virtualisation still have a way to go across the industry. While there are some shining examples of patient VDI deployment, many still don’t have a truly multi-region virtual environment without a lot of hand crafting, due to the evolving stepwise nature of various eras of industry leading solutions and lower investment profiles during the recent economic downturn.

HFMT: Is the growing presence of cloud solutions a reaction to the hedge fund industry’s continued focus on budgets and resource allocation?

RB: Yes, we think so. But it’s not the only reason and despite the hype, adoption rates for cloud by the larger managers in our niche is still low. CTOs at mature funds are being asked to do more with less. Major Capex tech refresh is unattractive, as is having resource committed to “lights-on” functions that don’t really differentiate the business.

The economies of scale that the cloud vendors exploit offers a win-win – whereby the CTO essentially gets a good portion of this ‘commodity’ skill more cost-effectively (and often at better quality) – allowing focus on supporting the things that make the fund better able to react and compete for investment and returns.

IB: Yes, but also due to the change in perception of the cloud as a useful place for additional computation, where network loads (and associated charges) are manageable and don’t outweigh the benefits. Risk management calculations are often punted to the cloud as they are based on public domain pricing and not a business risk if security issues arise.

GJ: Our customers are moving to cloud adoption in order to reduce Capex spending, ensure resources are well aligned to business imperatives and many other cost saving initiatives. However, a hybrid deployment is expected to be the preferred cloud choice of the future because it’s about delivering faster support of business projects, faster delivery of innovations into the market and driving a competitive edge.

HFMT: As security concerns increase, do you think some firms are apprehensive to adopt a public cloud operation?

RB: Without doubt. We see only “point usage” of the big name public cloud offerings (Azure, AWS) by our high-end clients. This model today largely remains the domain of high volume internet businesses and the software developer, but the data in the development environments operated by hedge funds is often too sensitive. And it’s not just security that limits the use of public cloud in our market. Control of data location, limited options for “baked in DR” and a lack of any tangible availability and recovery SLAs are part of a long list of challenges to adoption.

IB: Yes, but certain high intensity calculations such as risk analysis can be carried out without the exposure to intellectual property loss or identifiable portfolio holdings and trading activity being leaked. There is also a greater acceptance that the cost effectiveness of cloud presents a more fiscally responsible profile to investors, especially as the cloud reaches ubiquity in other areas such as personal banking and mobile payments.

GJ: Certainly security is always flagged as a key concern, that’s why VMware’s approach to public cloud had to be different. By adopting a hybrid cloud approach, customers are able to take advantage of the security and governance policies that they have already established within their businesses and transfer them to the applications to run in the cloud when it suits them. They’re using the platform they already know and trust.

HFMT: How does a hybrid cloud help mitigate risk for a hedge fund?

IB: One example is where resiliency is key and the private cloud can complement public or offsite cloud operations by being close to hand in case of emergency – reversing the traditional model of holding DR services offsite.

RB: In our opinion, the hybrid model offers CTOs the best of both worlds. “Secret Sauce”, regulator or investor sensitive, or performance guaranteed requirements can be satisfied in either secure dedicated private clouds or existing on premise systems, and less sensitive workloads can exploit shared environments – with the added bonus of being able to “burst” quickly when required. Investors and CTOs will need to get a lot more comfortable with multi-tenancy security before we get anywhere near ubiquitous shared cloud adoption by larger funds for production workloads.

GJ: Risk is mitigated at a number of levels by a true hybrid cloud. It can minimise the introduction of public cloud “silos” and the security and governance risks associated with them; it can ease the expansion of an IT estate by extending existing controls and policies off premise seamlessly; and, at a strategic level, it can give the business the agility to respond swiftly and proactively to market changes or opportunities.

HFMT: Is the hybrid cloud most suited to those hedge funds experiencing strong growth, given its ability to scale up quickly?

GJ: Certainly we see customers with very “peaky” unpredictable workloads choosing hybrid cloud for that exact reason, but also those with more obvious seasonality cycles. With the ability to move workloads off premise, on premise or back again – it is the flexibility which defines and differentiates a hybrid model. Finally being able to move away from the burden of over-provisioning is a key benefit to harnessing with cloud.

IB: Not necessarily. Smaller funds which already have some form of private cloud will also want public and therefore hybrid cloud on tap to prepare for and facilitate hoped for growth, if not already being experienced. Similarly funds which may be downsizing will also want to take advantage of the lower costs offered by hybrid cloud.

RB: As we all know, our niche is a fickle friend. The flexibility to scale costs and capacity both upwards and downwards is a good design inclusion when provisioning infrastructure for the modern day hedge fund.

Funds like the idea of being able to commit to a certain level of expenditure (to gain term-based cost reductions) on say, 70% of their workload, and then allowing the other 30% to flex on a shorter cycle for any number of reasons (i.e. not just growth). For example, one Behind Every Cloud client had a significant PMS refresh project that required a considerable increase in Development and UAT capacity for a six month project.

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