With the rise of new regulations such as the Dodd-Frank Reform Act, the advent of outsourcing and the growth of cloud computing, there is little doubt that the hedge fund industry landscape has evolved significantly in recent years. These changes have forced many firms to re-examine the way they do business, from both an operational and a technology perspective. On a personnel level, what effects have these changes had for the individuals that are responsible for technology at hedge funds and investment firms?
Chief Technology Officers (CTO), or individuals in comparable roles such as Directors of IT, Chief Information Officers, etc., have traditionally been responsible for an organization’s day-to-day IT functions and regular technology upgrades. However, as the industry has experienced drastic change in recent years, so too has the role of the CTO and his or her responsibilities.
Today, a hedge fund CTO is forced to wear many hats and have an understanding of many different technologies. In addition to having a variety of technical skills in such areas as networking, storage, virtualization, telecommunications and resource management, this individual must now also possess business savvy and other non-technical skills to support the organization. These include an understanding of the evolving regulatory environment, knowledge of compliance standards, keen communication skills and an understanding of the newest and most robust security measures.
New Requirements of a Hedge Fund CTO
Understanding Regulatory Requirements
Now that the Dodd-Frank Reform Act has gone into effect, investment firms have a whole new host of requirements to meet. As a result, CTOs at these funds have to take on a number of added responsibilities. They must run reports much more frequently than in the past in order to satisfy new legal requirements, ensure emails and other messages are being stored and archived appropriately, and liaise with legislators on a regular basis to ensure their firms are complying with all pertinent directives.
Knowledge Compliance Standards & Best Practices
In addition to ensuring their firms are in compliance with new and changing legislation, hedge fund CTOs now also have a host of new internal compliance procedures to implement. In today’s post-Madoff era, companies are working hard to develop policies that combat insider trading, prevent data breaches and avert other common securities risks. Mobile device security is another area where CTOs must focus their attention, especially with the recent growth of the BYOD trend.
Strong Communication Skills
In the past, technologists did not require finely tuned communications skills, as they spent the majority of their time focused on working with inanimate objects, such as computers and other hardware. Today, these individuals need to have strong communication skills to support their technical operations. As investors place increased importance on transparency and the due diligence process becomes more intense, many CTOs must now interact directly with investors and other stakeholders on a regular basis. It has become the CTO’s responsibility to educate investors on how technology is being used within the firm to support and safeguard their assets. They must also be able to demonstrate that robust security tools and procedures are in place to ensure all data is protected. Working more frequently with investors and regulators means CTOs need to sharpen their interpersonal communication skills in order to represent their organizations in the best possible manner.
Understanding Security Best Practices
With data breaches becoming more frequent and gaining increased media attention, security has become one of the most important â€“ if not the most important â€“ aspect of an investment management firm’s IT operations. In addition to managing the back end infrastructure, a firm’s CTO may now also be involved in developing internal policies and procedures to enhance security operations throughout the firm. Investors are increasingly seeking the highest standards in security, so technologists should be prepared to face tough requirements on this front.
The Impact of Cloud Computing
While hedge fund CTOs are grappling with increased responsibilities relative to regulations, compliance and due diligence, another phenomenon is also contributing to the evolution of this role: cloud computing. The popularity of the cloud (and outsourcing in general) has prompted many investment firms to reevaluate their technical strategies and change the way they allocate their IT resources. For instance, some firms have opted to reduce or eliminate their internal IT staffs and outsource all technology operations to a third-party provider. Others have chosen to maintain in-house technology resources while also leveraging the cloud for certain systems and applications. This combined approach can improve a fund’s operational effectiveness and efficiency. Many larger firms, in particular, have found it highly beneficial to utilize the cloud while also maintaining an internal IT team dedicated to managing certain aspects of the system and focusing on other technical projects.
Regardless of whether firms choose to embrace the cloud for all or part of their IT operations, the prevalence of cloud computing in the alternative investment industry is driving CTOs to evolve both their technical and non-technical skills. Technical roles are shifting from hands-on work with hardware and installations to resource management, integration, capacity planning and technical architecture management.
A New Era for Hedge Fund Technologists
Every firm has a different dynamic, with unique operational and business requirements. While the traditional role of hedge fund CTOs is ultimately changing, some aspects remain the same. Many firms still maintain that they need an internal expert on-hand for troubleshooting and other technical projects. Some prefer to focus their attention on the newer aspects of technology and operations, such as compliance, due diligence and security, while outsourcing the more fundamental day-to-day IT functions to a third-party provider. The role of the hedge fund CTO has undoubtedly evolved in recent years, and like the technologies they support, it’s safe to say that their job functions will be markedly different in the future as well.
As vice president of client technology, Steve Schoener is responsible for driving technology growth through Eze Castle Integration’s global offices, as well as assisting in product and service evaluations with new and existing hedge fund clients. Steve’s team handles application design and management in the Eze Private Cloud.