A Hedge Fund’s Guide to the Private Cloud

A Hedge Fund’s Guide to the Private Cloud

Cloud models have gained popularity within hedge fund industry due to the fact that they offer a cost effective, scalable environment that accommodates growing organizations and requires no capital expenditures. However, the term “private cloud” is often used lightly by standard financial cloud providers and typically refers to a model where the hardware is privately owned, but shared among multiple clients. As a result, understanding the key distinctions between the various cloud models available to your hedge fund can be challenging. Here at RFA, we’ve broken down five important facts to help you better understand the differences between public and private clouds and make the best decision for your hedge fund. Read on to learn more.

Understanding the Cloud: What Does Your Hedge Fund Need to Know?

 To understand the private cloud and what it means for your hedge fund, you must first understand what is meant by the term “cloud.” Cloud computing refers to a virtual network of servers that are used to fulfill various functions including applications, infrastructure, and data storage. The phrase “as a service” is frequently appended to cloud products, for example, SaaS for software and IaaS for infrastructure, because cloud providers offer cloud services on a contract, where firms are charged recurring fees to host their data in the cloud.Capture

Why are Hedge Funds Moving to the Private Cloud?

The cloud model has gained popularity in recent years due to a variety of benefits, including scalability, control, and cost efficiency. Clouds offer hedge funds  the benefit of moving all applications and data from onsite servers to the hosted model, allowing predictable costs and reducing the capital expenditures that are incurred from onsite network hardware. The shift from up-front capital expenditure associated with hardware costs to the more controllable operational expenditures of monthly and annual contracts provides predictability from a financial perspective. However, making sure that your hedge fund selects the right cloud model is paramount, especially from a security perspective.

Defining the Private Cloud for Hedge Funds

The private cloud is a technology environment that can be built by an outsourced provider or internally, and enables firms to access their own private virtual data center. Private clouds are more secure, and often a better fit for hedge funds and other investment management companies, because they allow for enhanced control, privacy and security of users’ data. When evaluating the private cloud for your hedge fund, make sure you know what to look for. Private cloud models should always be housed in data centers meeting the strictest country specific regulations, such as SAS70/SSAE16 certifications, to ensure maximum reliability and regulatory compliance. In addition, premier private cloud service providers will offer managed backup, intrusion detection and DR replicated across multiple data centers and built into the cloud infrastructure.

iStock_000022288868SmallTypes of Private Clouds for Hedge Funds

There are two approaches to private cloud design for hedge funds.  The first approach employs a privately owned piece of hardware that is shared by multiple clients. In this approach, the hardware is privately owned by the private cloud provider, and the hedge fund’s data is segregated through a variety of methods, such as physical, logical, data, network or performance segregation. This type of private cloud provides an enhanced level of security in comparison to a public cloud model. In the second approach to private cloud design, the hedge fund is designed a separate, private piece of custom designed infrastructure where all their data will sit and not be shared by any other funds. This approach is the most secure private cloud model, but also requires a much more costly and complex development process.

Public Clouds Offer Less Customization for Hedge Funds

In comparison to private cloud environments, public cloud environments are provided through outsourced providers that enable clients to pay a low monthly fee to access a shared hosting environment, making the environment more scalable and cost effective. Public clouds offer services at a much lower rate, but compromise security and control by offering users less customization. As a result, these cloud models are often not a strong fit for hedge funds based on the fact that hedge funds need to be extremely cautious when it comes to maintaining data protection and security.

Be sure to visit our cloud services page to learn what makes the RFA Private Cloud unique.