Its been a while since I’ve written a real techy piece, so had a fun time with this one. While it might seem a bit out of left field given a recent focus on fixed income market structure, it
is in fact the growth of structured derivatives trading that is making the use case for cloud computing by hedge funds all the more compelling. I spend most of the report explaining why the reasons that many financial firms have stayed away from cloud computing in the past are no longer valid. By the end of my analysis it just felt like a no-brainer. Here’s the PR:
A switch to cloud technology would provide badly needed computing power and significantly reduce technology costs for institutional investors. In fact, a new report from Greenwich Associates, Cloud Computing for the Buy Side: Moving Beyond the Myths, concludes that hedge funds could reduce computing costs related to portfolio analysis by 50% by switching to an enterprise cloud offering.
Cloud computing and its predecessor technologies have been discussed on Wall Street since the early 1990s with many financial firms adopting variants such as vendor hosted solutions and software as a service offerings to replace local installations. While these steps towards the cloud brought with them reduced cost and increased efficiency, investors have yet to embrace a broader move to the cloud held back by long held concerns that have now been addressed.
Questions About ROI and the Growing Need for Computing Power
Annual technology budgets among the institutional investors taking part in a 2013 Greenwich Associates study averaged $5.5 million. Hedge funds were the biggest spenders, with annual budgets averaging $7.9 million. But with budgets holding steady or shrinking, many firms still do not see a guarantee that the long term benefits of switching to the cloud will outweigh the short term costs.
Increasing regulatory certainty, acceptance that many tried-and-true investment strategies have changed for good and a resurgence of structured products are driving up the demand for computing power while IT budgets have not bounced back. Cloud computing could provide an effective means of accessing needed computing power at an affordable price.
“Given the potential savings, the contraction of Wall Street IT budgets, improved cloud offerings, and a market that requires more complex calculations to be completed in ever-shortening timeframes with ever-greater accuracy, Greenwich Associates believes the financial service industry needs to embrace cloud technology on a much expanded scale,” says Kevin McPartland, Head of Research for Greenwich Associates Market Structure & Technology Practice.