Nishesh - CCA Hedge Fund

Journal of Cases on Information Technology
Volume 21 • Issue 3 • July-September 2019
Investigation Into Cloud Computing

Adoption Within the Hedge Fund Industry
Thomas Cole, University of Liverpool, Liverpool, UK
Amit Kumar Bhardwaj, Thapar University, Dera Bassi, India
Lalit Garg, University of Malta, Msida, Malta
Divya Prakash Shrivastava, Higher Colleges of Technology, Dubai, United Arab Emirates
ABSTRACT
Cloud computing is not associated with a specific technology, instead it as an alternative method
to deliver technology as a service. This article investigates current cloud computing adoption in the
United States (USA) and United Kingdom (UK) hedge fund industry. Hedge fund technologists,
prime service consultants, technology service providers, industry application vendors, investors
and an independent information security consultant participated were surveyed for this article. The
article acknowledges the growth of cloud computing in the hedge fund sector. This research work also
highlights that the private cloud definition is vague and requires further classification, elaborating
on the variants of private cloud. This is important as the variants of private cloud computing offer
varying benefits and risk which the hedge fund sector has proven to be sensitive. Equally, this article
argues that some of the current security concerns are over-stated and perhaps reflect a conservative
decision making framework rather than a realistic consideration of the options.
Keywords
Cloud Computing, Hedge Funding, Software-As-A-Service, Technology Service Providers
1. INTRODUCTION
Cloud Computing is being adopted versatile manner by the different industries in the context of both
in the private and public sectors. (Mell & Grance, 2011) defined various service models of cloud
computing as Software as a Service, Platform as a Service and Infrastructure as a Service, which are
luring the companies due to their benefits. Cloud computing is capable of reaping benefits of on-
demand self-service, broad network access, resource pooling, rapid elasticity and measured service
(Amin, 2013). Cloud computing offers alternative IT solutions to cut down the cost of IT infrastructure
(Aljabre, 2012). The hedge fund industry is no exception and facing the pressure of to cut down the
management fees charged to investors (Jones, 2013). Despite this lure, there are constraints to adopt
the cloud computing specifically the public cloud deployment model in the context of control and
ownership of portfolio data by the fund (Amin, 2013). The recognizing the requirements of each
functional area and delivering them in customization manner depends upon the complexity work
process and ease of use demanded by the end-users (Ziman, 2012), as each functional area differs in
ease of use and complexity. Two pragmatic drawbacks are security and privacy and loss of governance
and control (Susanto, Almunawar et al., 2012). (AlZain, Soh et al., 2013) also support the security
is a major concern in the cloud computing.
DOI: 10.4018/JCIT.2019070101

Copyright © 2019, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

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A hedge fund’s portfolio is a main portion of intellectual property. If security and or privacy were
compromised the consequences could be catastrophic, just like happened in May 2017 the ransomware
attacks affect the worldwide. This implies there is a need for careful thought of the picky options and
approaches offered by the cloud computing concept and its application to the operation of hedge funds.
Hedge funds are affected by extensive business constraints, particularly in IT operations need to cut
down the costs and cloud computing emerge as right; though concerns are constraining adoption. The
paper highlights the constraints and improvements which could fuel cloud adoption in hedge funding
industry. In this research work various types cloud service and deployment models were studied. The
advantages and disadvantages of cloud computing recognized in general. A survey was conducted in
applications of cloud computing within the hedge fund industry concentrated on USA and UK based
organizations. Determine the cause of adoption and rejection of cloud computing within hedge fund
industry. Also, recommendations were made to ease the transition and improvement in adopting the
cloud computing within hedge fund industry.
Further thee scheme of research paper as follows: Section 2 deals with background and literature
where th review concepts of cloud computing, its risks and benefits and challenges present within
the hedge fund sector. Section 3 covers the problem formulation, surveying approaches, tools and
processes adopted to ensure a thorough survey was conducted. Section 4 begins with reviewing
the actual survey method exercised and then presents the results from the various surveys. Section
5 applies critical analysis to the results, identifies key findings and offers ideas for improvements.
Finally, the paper concludes by incorporating lessons learned and critically reviewing the complete
study and recommendations for improvements and future work.
2. BACKGROUND
The National Institute of Standards and Technology offers an overview of cloud computing as:
“Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access
to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications,
and services) that can be rapidly provisioned and released with minimal management effort or service
provider interaction”(Mell & Grance, 2011) Exponential growth for cloud computing is widely
predicted by leading industry vendors and consultants. (CISCO 2018) Cisco’s Cloud Index forecasts
that total data center storage capacity will grow nearly 4-fold from 2016 to 2021, growing from 663
EB in 2016 to 2.6 ZB by 2021. IDG research estimates “over the 2012–2016 forecast periods, public
IT cloud services will enjoy a compound annual growth rate (CAGR) of 26.4%” (Framingham,
2011). The Federal Cloud Strategy publication highlights cloud adoption to be a feasible solution
to these challenges and usher’s agencies towards cloud offerings. “The cloud computing model can
significantly help agencies grappling with the need to provide highly reliable, innovative services
quickly despite resource constraints” (Kundra, 2011). In summary it is possible to identify five
characteristics of cloud computing as; on-demand self-service, broad network access, resource
pooling, rapid elasticity and measured serviced. An alternative taxonomy is to segment the cloud
model using the NIST definition into service and deployment models (Mell & Grance, 2011). This
paper explores the adoption of cloud computing within the hedge fund business sector. Hedge funds
face their own unique challenges, which cloud computing has the potential to address. “The twin
pressures of fee compression from investors and increasing regulatory oversight has meant many
hedge fund managers may no longer have the appetite for incurring capital expenditures on building
an in-house infrastructure…” (Amin, 2013).
2.1. Literature Review

(Kim and Jo, 2017) according to this research paper cloud computing is capable enough to handle
business demands quickly and economically. A hedge fund is an alternative investment organisation
with a motive of positive absolute returns despite of market conditions achieved due to the ability of
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investment teams and the trading mechanisms available (Ubide, 2006). A hedge fund differs from
mutual funds (Strachman, 2012). The capital managed by hedge fund sector is reached to $2.208
trillion in 2012, a 7% increase from previous year and more than 20% from 2008 (Hedge Fund
Intelligence, 2013). Hedge funds adopted the long/short funds, event driven, fund to funds and macro
trading strategies along with differing technology requirements respective to types of hedge funds
(Ziman, 2012). According to Deutsche Bank report investors expect that the managers not only to
produce a positive risk-adjusted returns but to also mitigate risk to bring a hedge fund’s people,
process and technology into focus (Schmerken, 2013). Manager of small organization required a
proper infrastructure support to maintain secrecy of unnecessary risk from investors. The start-ups are
now more realistic about infrastructure and support requirements while cutting down the cost (Tozer-
Pennington, 2011). Despite the maturity of the hedge fund, investors expect sufficient technology
to be implemented and maintained. Hedge fund service providers have recognised that the day are
over when you have to buy new IT solution every year to offer and maintaining the enterprise quality
hosting as a service, same has been adopted in Abacus (Abacus Group, 2011). Alternative Investment
Management Association (AIMA) argued for institutional ranked infrastructure is a necessary (AIMA,
2012). A start up hedge fund is having obligation of hosting services available through a robust
data centres along with its additional services and data replica for a separate hosting facility in cost
effective manner. Eze Castle integration identifies the appetite to shift expenses from a capital to an
operational model due to cost effective solutions. (ECI, 2013). With respect to regulatory, hedge fund
industry is no exception and includes Dodd-frank, Foreign Account Tax Compliance Act (FATCA)
and Alternative Investment Fund Managers Directive. A Deloitte report predicted in 2013 that
regulatory and business compliance will increase the burden w.r.t. integrates governance, controls,
supervision, operations, and technology (Deloitte, 2013). Despite variations between hedge funds in
how they are implementing their technology strategy some common ground is present. Hedge Fund
infrastructure architecture (Ziman, 2012), specified some systems viz. execution management, fund
management, compliance, risk management, market data, client relationship management along with
relationships and information flow. Citi prime services published a report (Citi, 2011) described and
project technology transition in hedge fund industry. The broad transition of hedge fund infrastructure
hosting from the traditional IT design to a hybrid cloud model (a cloud-based strategy). Although
there is consistency in how technology services are bringing to hedge funds there is not a definite,
one size fits all, model. The style of management and trading strategy of the organisation decide the
technology strategy. Industry specific systems such as execution management, risk management, and
portfolio management are implemented by many hedge funds. Cloud based CRM solution hosting is
increasing according to Gartner. “SaaS or cloud CRM now accounts for 14% of the CRM software
market, and it is growing more than 25% annually” (Sulivan & Thompson, 2013). Hedge fund
strategies are highly dependent on technology, performance and systems availability is important
for the organisations existence.
During the literature review the author discovered few sources of previously research which
focused on the adoption of cloud computing within the hedge fund sector. The (Eze, 2012) focused
on the adoption of cloud computing within the hedge fund. Eze (2012) presents the interesting
statistics viz. 71% of respondents opted for private cloud, 84% recognised cost saving to be the top
catalyst for adoption and 55% first explored cloud services via basic business tools. (Citi, 2011) this
paper gave a wide range and detailed study into hedge fund technology considerations, also offered
an insightful model, detailing the transition of hedge fund technology architecture. (Sloane, 2014),
advocate that hedge funds firms and other alternative investment firms also switching to cloud solution
from traditional IT solutions to take the differentiation advantages. (Kumar, 2015) discussed about
the survey commissioned by Rackspace Hosting talks about the cloud computing user that 60% users
are moving from public to hybrid cloud. As hybrid cloud offers the befits of both public and private
cloud. (Kumar, 2015) according to the survey of Vanson Bounce of the behalf of NCC group nearly
three quarters of the firms are extremely concerned about the data security in cloud. (Kumar, 2015)
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Also, mentioned that adoption of cloud computing helps hedge fund managers to focus on their core
business activities. (INTEL, 2016) discussed about the cause of shifting to cloud by hedge funds and
other investment firms along with data security concern. (Technology 2016) this article talks about
how hedge fund managers incorporate the cloud computing in reducing operating costs, improving
performance, and leading regulatory challenges.
3. PROBLEM FORMULATION
Based on literature review the objectives of this research paper were finalized which are as follows:
• Survey the usage of cloud computing within the Hedge Fund industry, focusing on United States
and United Kingdom based organisations.
• Identify catalysts and implications leading to cloud computing adoption or rejection, specific
to the Hedge Fund industry
• Discuss what could change for cloud computing to fully flourish within the hedge fund sector.
3.1. Approach
To get an understanding of cloud computing technology & hedge fund industry; and their concepts
a literature review was conducted using the University of Liverpool online library, industry research
services viz. Gartner and IDC, hedge fund industry research reports (e.g. prime brokerage reports,
industry publication) and hedge fund technology service providers. To get understanding of the attitude
and adoption levels of cloud computing within the hedge fund industry surveys were conducted. The
sample was as large as possible and the participants were asked relevant questions according to on
their function and roles. The audiences were categorized as follows:
• Prime services
• Service Provider
• Hedge fund technologist
• Investors (clients)
• Information security consultant
All participants except of the information security consultant filled an online survey. The
information security consultant participated through email and respond the survey questionnaire.
The online survey was designed, delivered and analysed via Survey Monkey. Along with literature
review there are other major types of research method offered by Dawson (2009) are action research,
experiment, case study and survey. To have an understanding of how the hedge fund sector was
using cloud computing, the author deemed surveying to be the best method (Dawson, 2009). Using
a survey approach, it is likely to gather both quantitative and qualitative information from identified
group. The various participation groups were identified for current research work: application service
provider, prime service consultant, service provider, hedge fund technologist, investor (clients) and
an information security consultant.
3.2. Participant Recruitment

The snowball sampling approach was used for recruitment. The participants were directly approached
based on recommendation of the peers. Prime services consultants were already aware to perform
this research work as were hedge fund technologists. Apart from direct connections, people from
social media groups were approached.
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Due to the fact that recruitment was done via direct connections rigid inclusion or exclusion
criteria were not necessary. All the participants were encouraged by rewarding each of the participants
with a key findings summary of this research. Participants were allocated to groups to diminish the
biasness and expected participation goal was fixed as shown in Table 1.
3.3. Survey Design

To obtain meaningful data for the research, maximum participation was required. The questionnaire
design in such a manner to minimise the total time required to fill the survey form, the multiple-
choice questions were extensively used. This method simplified the course of responding and helped
in results analysis due to the controlled nature of the responses. A structured question set was emailed
to information systems security consultant to conduct an interview to collect the data. Table 2 shows
the delivery method utilised for each of the groups and anonymity of all participants maintained in
this research.
4. RESULTS
4.1. Method Review

Broadly the research designed set out in section 3 was implemented. Participation recruitment was
conducted effectively, leveraging the authors existing network and posting invitations to participate
within closed social media group forums. Table 3 indicates the total number of participants; all groups
matched or exceeded their goal.
The majority of analysis was conducted utilising the charting tools within Survey Monkey™.
There were however some cross-referencing questions such as “is there a trend in cloud usage in
Table 1. Participation goals
Group Participation Goal

Application Service Provider 10
Prime Service Consultants 5
Service Providers 3
Hedge Fund Technologist 50
Investors (clients) 5
Information systems security consultant 1
Table 2. Survey delivery
Group Survey Delivery Anonymity Enforced

Application Service Provider Online Yes
Prime Service Consultants Online Yes
Service Providers Online Yes
Hedge Fund Technologist Online Yes
Investors (clients) Online Yes
Information systems security Email Yes
consultant
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Table 3. Total number of participants
Group Participation Goal Total Number of Participants

Application Service Provider 10 17
Prime Service Consultants 5 6
Service Providers 3 4
Hedge Fund Technologist 50 51
Investors (clients) 5 5
Information systems security 1 1
consultant
relation to trading strategy” where the author opted to export the data into Microsoft Excel and apply
charting features. In practice, data analysis did not require advanced analytic techniques.
4.2. Application Provider Survey Results

An online survey was completed by 17 application service providers who are delivering the
applications to hedge funds. Application service provider (ASP) were requested to categorise the
type of applications, which they deliver so each could point out they used more than one type. Figure
1 shows the ten different types of applications identified which are deliver by the ASP. Regulatory
reporting application is most deliver service i.e. 58.82% and followed equally by the Risk Management
and Portfolio Management applications. Least preferred applications are Research management and
Electronic message archiving.
Figure 2 shows the top constraints faced by the ASP for SaaD adoption. Figure 2 shows that
security (35.29%) and integration (29.41%) the most frequent identified challenges constraining for
ASP while adopting the SaaS. Even one respondent raised data sovereignty issues as a constraint.
4.3. Prime Services Consultant Survey Results

Figure 3 shows that private cloud model was most utilized model in hedge funds and followed by the
traditional IT. There was some market hold for hybrid cloud environments and lowest for the public
cloud deployment model.
Hedge funds primary customers are their investors, due to the deficiency in regulatory protection to
investors of hedge funds, forceful due conscientiousness processes are employed, to gain transparency
and an understanding of how a hedge fund operates. Participants were requested to review what
investors attitude is towards private and public cloud models. As per Figure 4, it was believed that
50% of investors advocate private cloud, with 33% being agnostic. As per Figure 5 the attitude of
investor towards Public cloud adoption has little support among investors, with zero advocating, 66%
thought to be cautious and 16% believing public cloud would be disliked.
4.4. Service Provider Survey Results

In research work four technology service providers (SP) participated, specialise in supporting the
hedge fund industry. The service providers collectively support 875 hedge fund within the United
States and 355 within the United Kingdom. All of them offers the IaaS services, one SP acknowledges
PaaS as a supported model and two acknowledged SaaS as a service. The NIST five characteristics
of cloud computing were used to compare services offered by these SPs.
All respondents SPs, which aligned their services with broad network access, resource pooling,
rapid elasticity and measured serviced characteristics of cloud computing. Only one SP met all five
characteristics, additionally including the on-demand self-service. Participants indicated that effective
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Figure 1. Application categories
disaster recovery services, improved accessibility for mobile or remote workers, cost reduction, shift
from CapEx to OpEx were the top benefits cloud computing offers to hedge funds. Lack of operational
transparency and poor executive or investor perception were declared as the top two areas constraining
cloud adoption. Production and disaster recovery environments were recorded as being the dominant
utilisation of private cloud deployment. Hybrid cloud deployments were valued as disaster recovery
environments. Development environments are popular within public clouds. Figure 6 identifies
the auditing and reported framework SSAE16 to be favoured. ISO 27001 is adhered to by 50% of
respondents, with one service provider being CIF certified.
4.5. Hedge Fund Technologist Survey Results

Total 51 hedge fund technologists participated in online survey. Most of the participants hold a senior
technology leadership role within their organisation. Equity Long/Short dominates the type of hedge
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Figure 2. Top constraints for SaaS adoption
funds whom participated, contributing to 41% as shown in the Figure 7. The United States and Europe
are the main geographical regions where participants located their offices.
Figure 8 shows that the private cloud is the prevailing deployment model for all three environments
(production, disaster recovery and development). Public cloud is not implemented across any of
the environments. The author notes that this result contradicts a previous result which recognises
public could delivery to be used for both non-critical services (47%) and critical services (4%). This
contradiction supports the concern that the definition of cloud computing models is not clear. Overall
the private cloud is the favoured model; traditional IT services (not virtualised) are next, followed
by hybrid and lastly public cloud.
Systems implemented within hedge funds were evaluated, cross referencing with cloud service
and deployment models. Electronic message archiving, personal dealing (compliance) and client
relationship management products were the most popular for public cloud implementations, and SaaS
delivery was also the favoured model for these applications. Otherwise the trend visible in Figure
8 was shadowed with private cloud being the preferred model. Email, portfolio management, risk
management, execution management, regulatory reporting and research management are all strongly
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Figure 3. Cloud adoption model estimation
Figure 4. Investor attitude towards PRIVATE cloud
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Figure 5. Investor attitude towards PUBLIC cloud
deemed solutions viable for SaaS delivery. The majority (greater than 50%) deemed Identity and
access management and database solutions to not be viable for SaaS delivery. Security dominates
the main area of contention for cloud computing. Figure 9 supports this observation with 82%
recognising security to be a top three constraint of cloud computing. Privacy is the second, top three
area of concern, followed by availability. When posing the question “Would you consider hosting
the majority or all of your technology estate within a public cloud? 25% voted no, 45% would look
to leverage for some areas, 24% recognise a feasibility study is warranted and are neutral and 6%
firmly answered yes. Most hedge funds (57%) would leverage their own in-house technical talent to
conduct a feasibility study for public cloud computing adoption. Rapid deployment, simplification
of IT services and right sized scaling, pay for what you use were considered the top three benefits
of public cloud deployments. Enhanced business agility, effective disaster recovery services and
simplification of IT services were considered the top three benefits of hybrid cloud deployments.
Effective disaster recovery services, enhanced business agility, rapid deployment were considered
the top three benefits of private cloud deployments.
Participants were asked to grade related certifications and frameworks desirability for cloud
service providers. Figure 10 identifies that the information security certification (ISO27001) and
SSAE16 audit report were noted to be the most desirable. Cloud computing specific consortium
derived frameworks such as the cloud security alliance (CSA) were not known to 55% of participants.
Cloud industry forum (CIF) was not recognised by 58% of respondents.
4.6. Investor (clients) Results

Total five investors participated and completed the online survey; 80% declared that they did not
have a strong opinion as to whether a hedge fund should lean towards an in-house or outsourced
technology operating model. The group widely accepted that cloud computing was already deployed
within hedge funds. Private cloud computing was the most accepted model with 60% advocating,
the remaining participants were agnostic. Public cloud computing is looked upon more cautiously,
with 80% announcing their attitude to public cloud adoption is cautious. The top three concerns with
cloud computing were security, privacy and data sovereignty. Business resilience to failure is taken
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Figure 6. Service provider’s frameworks or certifications
in high regard, 60% expected critical services to be recovered (from a failure) within a few hours,
then remaining two deemed one day to be an acceptable goal.
The overall consensus is that technology implemented within hedge funds is important. 60%
voted technology is “imperative, a technology review must be conducted with the same level of detail
as other operational controls.” The remaining 40% voted “Very important, although other aspects of
the business are of greater interest.”
4.7. Security Consultant Interview

Head (highly experienced technology security consultant) of Research for the UK chapter of the
Cloud Security Alliance (CSA) consortium was interviewed. According to literature review CSA
has identified nine different security threats with respect to different service models (SaaS, PaaS
and IaaS) (CSA 2012), all this makes the security as a major concern. Certifications were used as a
means to highlight a service provider’s commitment to security. Major public cloud providers were
identified as case studies supporting this claim. Regarding present public cloud computing measures
with certification, the security consultant stated: “Look at major Cloud computing players, such as
Amazon, Google, Microsoft. These are dealing with their customer in much more open way, and
offering details of their certifications.” The linkage of security basics with SLA’s appears to be weak.”
The interviewee confirmed that the security controls within worthy cloud services are regarded
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Figure 7. Hedge fund strategies
Figure 8. Cloud deployment, by environment
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Figure 9. Top challenges for SaaS delivery
as stronghold, as a way of addressing this increased risk. Cyber security is a big challenge for all
businesses, regardless of shape and size. Even as the smaller business may not be essential to invest
as a lot in security as cloud vendors, appropriate security controls should be adopted and maintained.
Furthermore, particular attacks make most arguments superfluous, as these are not opportunistic,
plundering on weaker targets. Arguably hedge funds are not popular to victimize of cyber attack but
the potential of cyber criminals should never be underestimated.
5. ANALYSIS AND DISCUSSION
This section evaluates the results provided within section 4 in particular to address the two key aims
of the project:
• Identification of catalyst’s and implications leading to cloud computing adoption or rejection,

specific to the hedge fund industry
• Discuss what needs to change for cloud computing to fully flourish within the hedge fund sector.
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Figure 10. Desirable certifications
5.1. Cloud Adoption

The favoured cloud approach is private cloud computing, 70.5% of hedge fund technologists voted
that they utilise this delivery mechanism for mission critical services. Only 3.9% indicated that public
cloud was utilised for mission critical services. As per Figure 11, private cloud is implemented for
production, disaster recovery and development environments. 83.3% of prime service consultants
voted that there was a bias for private cloud as leveraged disaster recovery environments. Equally
83.3% indicated that development environments were embracing public cloud environments. The
author draws a correlation to this estimate with 47% of hedge fund technologists opting for using
public cloud for non-mission critical services. Development is a solution which would be deemed
non-critical, making it a good fit to the perceived strengths and weaknesses of public cloud approaches.
Delving further, the author analysed the adoption of private and public cloud by trading strategy.
Figure 11 recognises that Multi Strategy hedge funds were the least likely to use either private or
public cloud for mission critical services. Overall most strategies follow the trend of using private
cloud with a small scattering of public cloud adoption.
5.2. Catalysts for Cloud Rejection

Figure 12 depicts that no prominent or consistent constraint for private, public and hybrid cloud was
visible during evaluating the prime services consultant’s results. Results were reasonably scattered
with some soft trends observed. Reliability and data sovereignty were deemed the largest constraints
for private cloud computing. Poor executive or investor perception was the top constraint of public
cloud computing. Privacy and interoperability was the largest constraint for hybrid cloud models. If
it is security again hybrid and public cloud lack in it.
5.3. Catalysts for Cloud Adoption

However, the decision to accepting or denying cloud computing is not just based on perceived
problems but also embraces the potential benefits. The Figure 13 summarises the benefits of the
different delivery models based on survey offered by the prime service consultant
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Figure 11. Cloud deployment by trading strategy
Figure 12. Top constraints of cloud computing
“Cost reduction” and “right-sized scaling, pay for what is required / used” are popular benefits
for public cloud computing. This is supported by Strømmen-Bakhtiar and Razavi whom state “Cloud
Computing to a large extent can level the business playing field, bringing with it the advantages of
economies of scale and economies of scope” (Strømmen-Bakhtiar, Razavi, 2011). “Confidence in
Compliance” and “effective disaster recovery services” was judged to be the top benefits for public
cloud deployments.
Hybrid cloud is believed to enhance business agility. The nature of hybrid cloud enables various
cloud environments to be incorporated. This allows the business to evaluate on a per system or solution
basis. Each deployment model enjoys varying benefits along with varying risks. For example, for an
organisation which is required to store vast amounts of data, which is neither retrieval time sensitive
nor performance sensitive, a public cloud deployment could be a right fit. Loss of governance, control,
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Figure 13. Top benefits of cloud computing
Figure 14. Investor stance towards cloud computing
security concerns will remain factors so the risk versus reward should be considered. In the mean-time
the organisation can continue delivering core services via private cloud delivery, minimising disruption.
In summary cost reduction is a major benefit of public cloud computing. With the economic
climate leading to an aggressive review of technology budgets this deployment model may gain more
traction. Compliance and DR services both top the private cloud benefits, enabling hedge funds to
fulfil mandatory business services whilst enjoying efficiencies. Business agility is the top benefit for
hybrid clouds, empowering organisations to be creative with their technology design.
5.4. Investor Perception

Investors are the clients of hedge funds; they invest their money and expecting positive, absolute
returns. A management fee is extracted from capital invested and this extracted revenue stream
is used to work the hedge fund infrastructure. Technology is a major part of the investor’s due
conscientiousness process with 60% of participants agreeing that technology is “imperative, a
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technology review must be conducted with the same level of detail as other operational controls.
Figure 14 identifies the general consesus, private cloud is the favoured model, with 60% advocating.
Public cloud has no advocation, with 80% approaching taking a cautious stance. Investors’ power
to influence hedge funds operation should not be underestimated and their opinions are carefully
listened to and absorbed. PWC support the claim that investors are empowered to drive and change
business operations (PWC 2012). For investors there is some support for a private cloud solution but
skeptiscism towards public cloud adoption.
5.4.1. Framework And Best Practice Awareness

Frameworks are prevalent throughout the technology field. The fast-paced evolution of technology
means that governing bodies, consortiums and work groups must continually review and update their
implementation of key frameworks or standards. Even if not the complete solution, frameworks and
certifications are gaining wider acceptance, with motivated and experienced workgroups collaborating
in an effort to move cloud computing forward. Transparency and control were noted as the major
security concerns for the hedge fund technologists and certification offers one means to address such
concerns. Sunyaey and Schneider share this belief: “By signalling valuable qualities like transparency
of their services, legal compliance, reliable service levels and a high level of security at their data
centres…” (Sunyaev, Schneider 2013).
The author identified a number of relevant standards or best practise frameworks within this
paper, namely Cloud Security Alliance, Cloud Industry Forum, SSAE16 and the ISO27000 family.
Each have their own characteristics, and some are very specific to cloud computing (CSA and CIF)
others are generalist (ISO27000 and SSAE16). The mix of generalist and cloud specific certification
would enforce a best of breed approach. Sunyaey and Scheider also endorse this. “We emphasize the
need for broadly accepted, established, and feasible cloud service certification solutions as well as
trustworthy auditing institutions…” (Sunyaev, Schneider, 2013).
The results from the survey stressed the lack of awareness and appreciation of these best practise
frameworks as 54.9% of hedge fund technologists had never heard of CSA, 58.2% had never heard
of CIF. Both offer a valid framework, especially the CSA Cloud Control Matrix. This “…provides[s]
fundamental security principles to guide cloud vendors and to assist prospective cloud customers in
assessing the overall security risk of a cloud provider…” (CSA, 2013).
5.4.2. Regulatory Guidance and Support

Senior technologists within the hedge fund sector elaborated on their security concerns. A theme
recognised was the lack of support of cloud computing from regulatory guidance. One US technologist
stated “…until the SEC and other governing bodies give their blessing that utilizing public cloud
is ok, hard to commit.” A UK technologist supported this testifying “I would like the FCA to state
that they are happy with solution to put ours and our investors’ minds at ease.” The support of cloud
technology from regulators would expedite cloud adoption easing the concerns throughout the industry,
including investors, technologists and senior executives.
An additional observation was made relating the quality of guidance offered from Regulators.
Below is an extract from the current FCA hand book promoting guidance for information system
security.
“A firm should ensure the adequacy of the systems and controls used to protect the processing
and security of its information and should have regard to established security standards such as
ISO17799 (Information Security Management)…” (FCA 2013).
ISO17799 was replaced in 2005 with ISO27002:2005, this has recently been updated with
ISO27002:2013. Therefore, the guidance is two revisions, 8 years out of date. In summary regulators
actively supporting cloud computing could significantly increase adoption. However, current guidance
should be reviewed to ensure it reflects current best practices.
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5.4.3. Application Momentum

A further reason that may lead to improved take up of cloud solutions is the changing nature of
applications and systems widely adopted within the hedge fund sectors. Applications currently
deployed and graded as a “viable candidate to migrate to a SaaS” model are; electronic message
archiving, personal dealing compliance and client relationship management. Electronic archiving is a
good fit to public cloud computing due to operational requirements. The Financial Conduct Authority
(UK regulators) requires that electronic communications must be retained “…for a period of at
least 6 months from the date the record was created…” (FCA 2013). Although this is a compliance
requirement this service is not business critical i.e. a loss of revenue could occur if performance or
availability was degraded. Technical security solutions are relatively easily implemented to address
security concerns about the data both at rest and in transit.
The application service provider results indicate that 70.5% of application service providers report
that their products can be delivered via SaaS deployments. Additionally, the 60% of the providers,
who do not currently offer a SaaS solution, are actively planning to work towards a SaaS model.
The private cloud model is favoured by application service providers with 90% of SaaS applications
being hosted within a private cloud; the remaining 10% deliver their application via public cloud.
Overall the SaaS model, using private cloud, is already popular. Service providers are already
embracing cloud technology, setting a clear strategy to deliver their services via cloud computing.
As application service providers advocate cloud models, this will enhance the attraction of cloud
computing to hedge funds.
6. CONCLUSION AND RECOMMENDATIONS
6.1. Application and Limitations

The participation groups were designed to balance the survey results as best as possible. Reflecting
on the groups, the author recognises that an additional group was missed which would have further
enhanced results. In some hedge funds little or no technology specialism is directly employed. These
hedge funds’ technology strategy is commonly driven by roles whom are not specialist technologist,
for example Chief Operating Officer’s and Chief Finance Officers. The technology arrangement for
these hedge funds would typically be fully outsourced. A survey focusing on this group could have
offered a different perspective on cloud adoption as to whether such organisations have their own
environments procured and manager or whether they adopt an existing cloud environment.
Established hedge funds are likely to have significant sunk costs for their IT services. Transitioning
to a cloud solution needs to be internally examined to ensure feasibility. Triggers such as rapid increase
or decrease in service requirements or looming production life cycle expiration could be valid catalysts
for cloud consideration. Technology and business leaders within established hedge funds are faced
with ethical barriers. Cloud computing has the potential to reduce internal staffing requirements.
The investor survey supports this with 80% agreeing that cloud computing increases the scope to
outsource. The reluctance to impose major business disruption could itself act as a constraint of cloud
computing. Surveying non-technical, senior hedge fund personnel will add balance to the debate.
Sample volumes reached and exceeded goals set by the author to obtain a fair reflection of
current cloud adoption. The snow ball sampling method worked effectively, with the author calling
upon industry networks.
Ambiguity as to cloud definition concerned the author. Participants on the whole were pro-active,
engaging the author to reconcile the intended definition. Whilst reconciling definitions a contradiction
in terms was apparent. Cloud deployment model imply differing benefits and risks and if this confusion
was reduced it would assist in the sector’s debates about the merits of cloud computing.
18
6.2. Recommendations
This paper concludes by setting out some key issues identified that currently hinder cloud computing
adoption.
6.2.1. Redefining Private Cloud Definition

It is apparent that confusion was present as the definition of cloud computing and, initially, the NIST
Cloud computing definition document (Mell & Grance, 2011) was used as a key statement. However,
in practice that definition is not complete. In particular, NIST state that within the private cloud
definition that “…the cloud infrastructure is provisioned for exclusive use by a single organization
comprising multiple consumers (e.g., business units)…”(Mell & Grance, 2011).Yet cloud service
providers also sell multi-tenanted “private cloud” environments, for example one service provider
advertises a “…private cloud infrastructure that provides hedge funds and investment firms a highly
redundant, secure and available IT environment”(ECI 2013). The nature of multi-tenancy private cloud
is not compatible with the statement “exclusive for a single organization…” (Mell & Grance, 2011).
Security was identified as a major hurdle for cloud implementation, specifically control, staff,
transparency and visibility. In combination, this led to a need to redefine the concept of a private
cloud, as proposed in Figure 15.
Figure 15 subdivides private cloud in three; public cloud, niche service provider and consumer.
Each of these classifications alter the degree of control and transparency available to the consumer.
Public cloud providers can also facilitate private cloud deployments, for example Amazon Web
Services, Virtual Private Cloud (VPC) product (AWS 2013). Niche Service Providers technically are
not too disimilar to private clouds hosted on public clouds. However, the scale of the organisation
delivering the technology is on a much smaller scale. Lastly the Consumer category encompasses
organisations who procure their own environment for their sole usage, yet utilise cloud technology
to deliver services.
In Figure 16 models the impact made on control, transparency and cost for each sub-category of
cloud computing. The consumer maintaining their own cloud environment offers the greatest level
of control and transparency, which comes at a cost. The niche service provider is likely to own the
underpinning hardware, however leased to clients. This scale enables the niche service provider to
remain nimble and offer transparency. Public cloud which host private clouds may enjoy the economies
of scale decreasing cost, however transparency and control is likely to be limited.
The sub-division of the private cloud definition improves NIST definition of private cloud models.
6.2.2. Regulatory Endorsement and Guidance

As detailed previously, there is a lack of guidance from regulatory bodies (namely SEC and FCA). The
FCA handbook makes reference to an outdated (by 8 years) ISO standard for guidance towards best
practice information security (FCA, 2013). Hedge fund technologists have also voiced their opinion,
looking towards regulatory bodies to endorse cloud computing to compliantly move forward. The
lack of awareness of cloud certifications could also be addressed within this initiative. Regulators
can not only reference reputable consortiums best practice frameworks but contribute to improving
and harmonising cloud computing frameworks.
6.2.3. Final Thoughts

The cloud computing model remains a shortlisted strategy item for many technology leaders, hedge
funds are no exemption. Adoption specifically of the private cloud model is strong and set to continue
growing as constraints are largely addressed. The study found the NIST cloud computing definition
(specifically private cloud) is vague which should not be under estimated in importance. The different
deployment models offer varying risks and benefits, appropriate definition aids in associating risks
and rewards for each model.
19
Figure 15. Segmentation of private cloud definition
Security remains a large constraint, the author challenges the sentiment of this concern. Cloud
computing vendors invest heavily in security, to a level which organisations would struggle to match,
without major financial investment, business change and operational overhead. Smaller organisations
also need to implement significant security controls. Their risk is deemed lower due to the confined
attack surface, however this should not be used as an excuse to neglect or disregard security concerns.
Specialist private cloud environments appear to be a valuable solution for small and larger hedge
funds. Frameworks have and continue to progress, an opportunity is present for regulators to update
their guidance, endorsing cloud computing and binding guidance to reputable cloud best practice
frameworks, such as the CIF and CSA. Best practice frameworks or certification are not a silver
bullet. If a service vendor is CIF or ISO27001 certified it does not mean the consumer is totally
protected and safe. Frame-works are a means of harmonising operations, providing transparency and
best practice controls and procedures.
New or start up hedge funds are able to enjoy a blank canvas so the concerns of transition to a
cloud-based model does not constrain them. This is substantiated with all six prime service consultants
agreeing that start-up funds should “engage with proven and known service providers.” Therefore,
the obvious choice for new or start-up hedge funds is to embrace private cloud deployment via
reputable, industry service providers. Established hedge funds are challenged with transitioning,
realising business disruption. Sunk costs (both economically and physiologically) are likely to impose
on this decision.
Cost reduction is registered as a benefit, but was not a coherent advantage of cloud computing.
Literature review suggests that cost savings are likely to be realised with cloud deployments. With
cost reduction becoming a priority for many hedge funds, cloud computing is estimated to be endorsed
on a wider scale throughout the industry.
20
Figure 16. Segmented private cloud analysis
21
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Thomas Cole is a Student at The University of Liverpool, Liverpool, UK.
Amit Kumar Bhardwaj was born in 1974. He received his B.Sc. (Computer Science) and Master of Business
Administration (MBA) in marketing domain from Kurukshetra University, Kurukshetra, India in 1996 and 1999
respectively. Also, he received his Master of Software Engineering from Thapar Institute of Engineering &
Technology, Patiala, India in 2007. His research domain was Grid computing. He did his Ph.D. in the domain
of Network traffic (data) visualizations-based network security Systems from Thapar Institute of Engineering &
technology in 2015. Presently he is working as Sr. Assistant Professor in the domain of information systems domain
in LM Thapar School of Management, Thapar Institute of Engineering & Technology, India, since 2008. He is a
good researcher and has a good number of publications in SCI, ABDC listed, and many Non-SCI international
journals and conferences. Also, he has published a book entitled ” E-business - concepts, and security” in 2010.
Lalit Garg is a Senior Lecturer in Computer Information Systems at the University of Malta, Malta. He is also
an honorary lecturer at the University of Liverpool, UK. He has also worked as a researcher at the Nanyang
Technological University, Singapore and at the University of Ulster, UK. He received his first degree in electronics
and communication engineering from the Barkatullah University, Bhopal, India, in 1999, and his postgraduate in
information technology from the ABV-Indian Institute of Information Technology and Management (IIITM), Gwalior,
India in 2001. He received his Ph.D. degree from the University of Ulster, Coleraine, U.K., in 2010. His research
interests are missing data handling, machine learning, data mining, mathematical and stochastic modeling, and
operational research, and their applications especially in the healthcare domain. He has published over 70 technical
papers in refereed journals and conferences.
Divya Prakash Shrivastava earned B.Sc (Computer and Electronics Instrumentation), Master of Computer
Application (MCA), M.Tech (IT) and Ph.D. in Computer Science from reputed Indian Universities. Shrivastava
possess more than 22 years teaching Computer Science/Engineering/I.T and Information Science courses . At
present, working in Computer Information Science Division at Higher Colleges of Technology, University, Dubai,
UAE. He worked in North West South Africa, North Africa and North East African countries as well as reputed
Technical Universities of India. He has a vast experience in the research and academia. Dr. Shrivastava carried
out educational innovation, development and raising the educational standard of the Organizations.
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Journal of Cases on Information Technology

Volume 21 • Issue 3 • July-September 2019

Investigation Into Cloud Computing

2.1. Literature Review

3.2. Participant Recruitment

3.3. Survey Design

4.1. Method Review

Table 1. Participation goals

Group Participation Goal

Table 2. Survey delivery

Group Survey Delivery Anonymity Enforced

Table 3. Total number of participants

Group Participation Goal Total Number of Participants

4.2. Application Provider Survey Results

4.3. Prime Services Consultant Survey Results

4.4. Service Provider Survey Results

Figure 1. Application categories

4.5. Hedge Fund Technologist Survey Results

Figure 2. Top constraints for SaaS adoption

Figure 3. Cloud adoption model estimation

Figure 4. Investor attitude towards PRIVATE cloud

Figure 5. Investor attitude towards PUBLIC cloud

4.6. Investor (clients) Results

Figure 6. Service provider’s frameworks or certifications

4.7. Security Consultant Interview

Figure 7. Hedge fund strategies

Figure 8. Cloud deployment, by environment

Figure 9. Top challenges for SaaS delivery

5. ANALYSIS AND DISCUSSION

• Identification of catalyst’s and implications leading to cloud computing adoption or rejection,

Figure 10. Desirable certifications

5.1. Cloud Adoption

5.2. Catalysts for Cloud Rejection

5.3. Catalysts for Cloud Adoption

Figure 11. Cloud deployment by trading strategy

Figure 12. Top constraints of cloud computing

Figure 13. Top benefits of cloud computing

Figure 14. Investor stance towards cloud computing

5.4. Investor Perception

5.4.1. Framework And Best Practice Awareness

5.4.2. Regulatory Guidance and Support

5.4.3. Application Momentum

6. CONCLUSION AND RECOMMENDATIONS

6.1. Application and Limitations

6.2.1. Redefining Private Cloud Definition

6.2.2. Regulatory Endorsement and Guidance

6.2.3. Final Thoughts

Figure 15. Segmentation of private cloud definition

Figure 16. Segmented private cloud analysis

Thomas Cole is a Student at The University of Liverpool, Liverpool, UK.

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