Hedge funds and the cloud

Before he founded Amazon, CEO Jeff Bezos, was a green Princeton graduate working on Wall Street. At hedge fund D.E. Shaw & Co., he helped build "one of the most technically sophisticated quantitative hedge funds," his bio notes. At Bankers Trust, he led the development of computer systems that helped manage more than $250 billion in assets. 

He has not forgotten his pre-Amazon experience. In fact, he seems to have thought about it a lot. He has obviously concluded there's a lot of synergy between Wall Street asset managers and Amazon's cloud computing initiative. On Oct. 19, Amazon is scheduled to hold an invitation-only event to tout how its web services would be helpful to hedge funds. 

According to the event notice: "For many hedge funds, being successful in today's economic environment requires the ability to process large quantities of data quickly to arrive at good investment decisions. Traditionally, a fund's ability to process this data has been limited by the amount of computing and storage resources it could acquire. This meant funds often had to make large upfront investments in servers, storage, networks, and facilities, with limited flexibility to handle variable needs. Every dollar spent on computing infrastructure meant less was available for the more mission critical activity--investing." 

The idea of marrying hedge funds and cloud computing is starting to catch on. Applied Research-West has found that more than 80 percent of funds are either using clouds, implementing clouds or setting up trials, as noted by HedgeTracker. Also, more than 71 percent expect cloud computing budgets to grow over the next two years, as more functions move to the cloud. In some ways, cloud computing applications are a no-brainer for asset managers. It would be hard to argue with Transparent Values' decision to embrace Salesforce.com's CRM solution. 

But when it comes to the most sensitive aspects of what hedge funds do, it's a more complex issue. 

The calculation that you are better off purchasing cloud power as you go rather than building your own infrastructure up front is one that goes beyond the spreadsheet. There are cultural issues at work here as well. Would firms want to entrust their most sensitive applications and data to a third-party? Do they trust the integrity of such systems? What compliance issues are thus raised? 

I think eventually we'll see more hedge funds embrace large clouds. But they're going to first have to get more comfortable. Perhaps there are ways that firms can experiment with hybrid models--moving some development work to the cloud to get their feet wet. - Jim