Updated: Aug 31, 2022
The decades of technology impact on the trading industry are well known and undisputed. This global transformation not only continues, but is happening at a faster and faster pace, especially for hedge funds and asset managers. Portfolio managers are constantly seeking the next generation of technology to improve their ability to ingest, interpret and generate signals from vast data sets, always with the goal to improve data management, liquidity management, margin management and execution costs. Data sets are becoming increasingly available and at lower cost. This means managers expect technology to make that data available in a timely and hyper-accurate manner.
But investors don’t pay their fund managers to worry about how to fit all the technology pieces together.
This task falls to the expertise of the technology provider that manages the various platforms – data, trading, execution, trade capture & reporting. All the while providing cybersecurity, data-loss prevention and compliance controls. For this reason, technologists are becoming ever-closer partners to hedge funds, money managers and private equity firms.
In large firms, for the most part, this comprehensive nexus of technology and trading is worked out; entire teams are dedicated to the various tech stacks that deliver data and IT services to the portfolio managers, analysts, researchers and python programmers.
What if you’re a portfolio manager without the comprehensive infrastructure and services of a large firm? You outsource, but simply hiring a technology firm is not enough. When trading is part of the equation, specialized knowledge, expertise and, above all, experience, is key to choosing an IT firm that can not only deliver the right technology solutions, but do so in a manner that satisfies investors and always remains secure, scalable, reliable, cost effective and fit-for-purpose.
One Size Doesn’t Fit All
Understand that your IT firm is there to provide advisory services that work in harmony with your firm to achieve the optimal business outcomes. It’s a partnership, but make no mistake, trading performance always drives the bus.
Start with a flexible solution that is tailored to your organization. This means unbundled packages of IT services that are fully integrated with complete transparency.
Adopt a platform that satisfies the needs of your organization, not the expertise of the IT firm. This means examining the merits of a public cloud, private cloud, physical infrastructure or a blend of all three and choosing what’s best toward achieving the firm’s goals.
Insist on a tech company that prioritizes service over solutions. While every firm is different, with varying business models and operations, a service-oriented approach is universal and allows the right type of collaboration to promote ongoing, successful operation. 24x7 support is a must.
Understanding Is Key
Broad IT expertise is simply not sufficient to provide the specialized support Hedge Funds, Private Equity, and Money Managers need to drive their business to growth and success. The IT team must understand how the investment business operates and possess subject matter expertise in order to provide the services and support that keep operations running without interruption.
Your IT provider should consider the following:
One of the benefits of outsourced IT is the ability to provide industry-strength technology tools and applications to smaller and emerging funds at cost-effective rates. As a fund manager or COO you will only become more dependent on technology as the fund evolves and investor due diligence increases. To overcome what can appear a never-ending technology enigma – How much to budget on IT? Cloud or physical infrastructure? How simple is too simple? Which tasks to outsource? What technology is appropriate and what’s overkill? – look to partner with an IT firm who takes a more consultative approach to the relationship and is willing to invest time to understand the fund’s strategy & compliance needs.