Buy-side firms don't just want the cloud; they want choice

By David Veal | 29 November 2018

Within the world of buy-side operations, you may be led to believe that simply putting some software in the cloud is the answer to all your infrastructure problems. Many software vendors, consulting firms, hosting cloud service providers and a whole array of other organisations (many with vested interests) have passionately proclaimed the benefits of cloud-based technology, decried any other approach to deploying software and asserted that the only future for investment management fintech is hosted services in the cloud. Leaving the hyperbole aside, the decision between ‘cloud or non-cloud’ is not always quite so binary.

For some buy-side firms, a local installation on physical servers might still be the best option for a number of reasons that may simply relate to corporate preference. It is fair to say that this approach often requires a heavy technical architecture – hardware to run systems on and replication of that hardware in another location as a safeguard. There is nothing wrong with this stance and it might still offer security and comfort to those still unsure what a cloud environment might mean for them. For those considering change, however, a local installation commonly necessitates multiple environments, such as UAT, development, production and disaster recovery. There is an element of risk in this methodology, since there may be some latency between the disaster recovery and production environments, and, if a client has software on local servers that are approaching the end of their lifespan, it might make sense to consider a cloud-based deployment in some form as a new server can cost upwards of £100,000.

One preference may be deployment in the buy-side firm’s own cloud service provider’s environment. This type of private cloud approach operates as a hosted data centre, whereby new systems utilised by a buy-side firm are always installed on the same provider’s infrastructure. The ‘installation’ would therefore be on virtual machines that potentially host all of a firm’s cloud-based systems and offers greater integration, support and maintenance opportunities across systems and external connectivity. With cloud-based services there are options for real-time replication of environments so the risk of data loss or latency in the cloud can be mitigated. There are therefore ‘soft gains’ in moving to technology that is run in virtual environments. Since many of the larger buy-side businesses are working towards this kind of arrangement for their IT infrastructure, vendors must to be capable of deploying their software solutions in these external ‘virtual’ locations.

A third option is for the vendor to install and deploy their systems on a cloud-based hosted service, creating a virtual machine environment (directly within Microsoft Azure, Amazon Web Services or other cloud computing provider) on behalf of the buy-side firm. In this scenario the vendor has the relationship with the cloud service provider, delivering a shopping list of both services and architecture required to run its system and support it.  

A crucial difference with this third methodology is that the vendor also manages and monitors the system on behalf of the client. Typically, if there is a problem with a system the buy-side firm would contact the vendor’s support desk to report the issue and the vendor would issue a patch to fix it. In a cloud hosted model, the vendor should be monitoring the system running in the virtual machine environment to see the problem first-hand as well as managing upgrades and external patches to the servers. This approach certainly involves much more than simply depositing a system in environments such as Microsoft Azure and imagining that it will take care of itself. This approach is also spawning new service propositions from vendors determined to keep up with changing times and consider new service opportunities.

I do believe that this kind of hosted management service will become increasingly popular among buy-side firms. Clients, nevertheless, need to be aware that this is not necessarily going to be a cheaper option as vendors are assuming many of the responsibilities previously managed and funded directly by clients, and there are no magical fixes to the necessary overheads. Buy-side firms should not consider this arrangement from simply an economic perspective, but because it is more effective and efficient as part of a longer-term strategy to move away from technology support models.

For buy-side firms considering their method of software deployment, there are at least three choices. Corfinancial understands that the buy-side industry is seriously considering greater, more strategic moves towards the cloud and that shift is inevitable, but we believe that firms need choice within the transition. Whatever route chosen, firms should always demand flexibility as its business model may regularly change in the future. As a consequence, vendors must be fully invested in their cloud strategy to be in a position to provide services that they may have never previously delivered. Fundamentally, I believe that the objective for all buy-side firms should be to get the best value out of a system without the overhead of maintaining it.

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