Moving to the cloud could save hedge funds money

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 toward 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.

Annual technology budgets among the institutional investors taking part in a 2013 Greenwich Associates study averaged US$5.5 million. Hedge funds were the biggest spenders, with annual budgets averaging US$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 time frames 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 the company’s market structure and technology practice.

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