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Banking on the cloud for elastic computing

Many in the investment management world would agree that the cloud is gaining traction in the sector. While generally those in the front office don’t foresee much impact from the technology, the middle and back offices are looking at a shift towards virtualisation. A 2010 study by InformationWeek of financial services technology professionals found that 71% are already using, or considering implementing, a cloud solution.

But just how can the cloud benefit asset managers – and what are the challenges?

In my opinion, the key benefit of the cloud is ‘elastic computing’. This means that the organisation taps into a flexible third party resource of processing power that can be up- or down-scaled according to need. A good example of this is options pricing. The demand for processing power for options pricing is generally flat, with sudden market spikes. Asset management firms can choose from two things. Either invest in a dedicated system for processing options pricing data, and have most of it lying fallow 90% of the time, or use the cloud. By utilising the cloud, they can simply pay for a low level of processing power during quiet times and spend more for extra units of power in peak times. Even if the processing power during peak times is relatively expensive, this would work out as a more cost effective option.

So why isn’t investment in the cloud even more widespread? In a word: security. We’ve all seen the high-profile security breaches at organisations such as Google and Sony. Clearly this sort of data breach at a financial institution would have much more drastic consequences, given the sensitivity of data stored by these organisations. But there is an option for those looking for a more secure system: the private cloud.

Privacy in the cloud

A ‘private cloud’ means keeping your data within the organisation – physically. Effectively it means setting up a datacentre that operates as a shared resource, with processing power that can be shifted across applications as necessary. While this will sometimes result in paid-for processing power going unused, it is still a much more flexible solution than separate process-specific systems. This also assuages the fears of those who worry about their data being kept in the hands of others.

The key challenge for those setting up private datacentres right now is a lack of industry standardisation. With many of the industry-specific tools that one needs to build an effective asset management private cloud being proprietary, connecting them together can be a challenge. But now many organisations are getting together with industry groups such as the Open Data Centre Alliance to create open standards for the sector. As this hurdle is overcome, many more asset managers will invest in the cloud as part of their back office solution.

I think the important consideration for asset managers looking to invest in the cloud is to weigh up the benefits of the private and the public offerings and decide which is best for which part of the business. Many will choose to outsource less vital functions, or those that use less sensitive data, to third party providers, and keep the most important core systems private. Whatever mix firms go for, it’s becoming increasingly clear that the future lies in the cloud.


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