Industry Terms You Should Know: Hedge Funds and the Cloud

Industry Terms You Should Know: Hedge Funds and the Cloud

We are back with the next installment in our industry terms series. In today’s post, we review the terms your hedge fund needs to know when it comes to the cloud. Although the cloud is a pretty common buzzword these days, it can be challenging to gain a complete understanding of its complexities and what they mean for your business.

Cloud: In the most basic terms, the cloud refers to software and services that are run and accessed via the internet and stored in third party data centers. industry terms cloudA virtual network of servers is used to fulfill various functions including applications, infrastructure, and data storage. When a hedge fund says they are moving to the cloud, they are referring to transitioning from a CAPEX model, in which they invest in on premise hardware that depreciates over time, to an OPEX model, in which resources are utilized and paid for as they are consumed. In recent years, many hedge funds have been moving to the cloud to avoid making an upfront investment in on premise hardware, to reduce maintenance costs, to be able to quickly scale computing resources up or down depending on business need, and to even improve their security posture.

CAPEX: CAPEX refers to capital expenditure. Many firms, especially newly launched hedge funds, select the cloud model to reduce the upfront cost of technology. Instead of making a large investment in on-premise servers, they pay for the resources as they go by utilizing the cloud. This can be effective for a hedge fund that is still growing and needs to easily and quickly scale computing resources based on the changing needs of the business. The cloud also enables funds to get up and running quickly with minimal downtime.

OPEX: OPEX refers to operational expenditures. Operational expenditures replace capital expenditures during a cloud move. Instead of paying for resources up front, funds pay as they go, usually in the form of a monthly fee that is based on firm user count.

As a Service: The phrase “as a service” is commonly appended to cloud products. Two frequent examples are “SaaS” for software as a service and “IaaS” for infrastructure as a service. This terminology is used because cloud providers offer cloud services on a contract, where firms are charged recurring fees to host their data in the cloud.

SaaS: SaaS refers to software as a service, which is a software licensing and delivery model where software is licensed on a subscription basis and centrally hosted. Many common business applications, such as accounting, HR, payroll, and CRM applications, are delivered through this model.

IaaS: IaaS is another cloud term that refers to infrastructure as a service. In this model hedge funds are able to move all applications and data from on-site servers to the hosted model, resulting in predictable costs and reducing the capital expenditures related to on-site network hardware. This is typically a full service solution, and offers many benefits to hedge funds by including security features, support, disaster recovery, and data backups.

Data Segregation: While not necessarily a cloud term itself, understanding the idea of data segregation is vital when it comes to selecting the right cloud model for a hedge fund. Depending on the type of cloud service, how data is segregated and where it is located can vary. In the public cloud, data sits in a shared environment alongside that of other firms. The location of the data may not be industry terms cloudshared by the provider. A private cloud can be built as single or multi-tenant, with multi-tenant environments being segregated  by different methods, including physical separation, logical separation, data separation, data separation, network separation, or performance separation.

Private Cloud: There are two main types of private clouds: a privately owned cloud, in which data sits on a privately owned piece of hardware that is shared by other users and is segregated by one of the methods mentioned above. In the second type of private cloud, hedge funds are designed a private and custom piece of infrastructure that is not shared by any other hedge funds, and is managed either internally or externally by a third party service provider, such as RFA. Private clouds are popular choices for hedge funds because they are more secure, and allow for enhanced control, privacy, and data security. In this model,hedge funds are able to access their own private virtual data center, and private cloud providers typically will offer managed backup, intrusion detection, and disaster recovery replicated across multiple data centers and built into the private cloud infrastructure as an added benefit.

Public Cloud: The public cloud is provided through an outsourced provider and is sometimes cheaper than the private cloud. In this model, firms access a shared hosting environment.  While the ongoing costs are decreased with the public cloud, so are the levels of security, control, and customization. Hedge funds may not know where their data is located or how is it segregated. In addition, leveraging the public cloud can actually end up being more expensive for a hedge fund, depending on the costs to run certain applications that require enhanced CPU and memory.

Hybrid Cloud: The hybrid cloud model has recently grown in popularity. Hybrid clouds enable hedge funds to take of advantage of the features of both public and private cloud environments. Hedge funds may choose to host less critical functions and applications in the public cloud, and those with a need for heightened security either in the private cloud or on premise.