Will Wainewright

23/11/2011 Author: Will Wainewright

Cloud expectations may be coming down to earth

As technological innovations go, cloud computing has had more than its fair share of coverage, not least in the hedge fund sector. Most fund professionals now seem keenly aware of its potential benefits, chief among them the lower costs and stronger support systems on offer. But how does understanding of its risks stack up?

The sector’s tech wonks warn that cloud technology is currently at the ‘inflated expectations’ stage of the so-called ‘hype-cycle’ – the process by which all technological innovations are absorbed into business life. Soon will come the ‘trough of disillusionment’ as some users fail to successfully capitalise on cloud technology's potential benefits. But why might this be?

For one thing, the return of counterparty risk to the hedge fund agenda, as evidenced by the collapse of MF Global last month, means any new structural change will be vigorously assessed on safety grounds. Can the cloud be trusted to manage data safely and confidentially? Switching to the cloud presents great operational challenges too, according to the CTO of one hedge fund which has made the switch. Working out which systems and processes to export to the cloud is by no means a simple process and varies from fund to fund.

There are, of course, more stories of success than failure. At least one billion-dollar hedge fund has reported monthly savings in the tens of thousands since moving its technology onto the cloud. Its benefits are multiple and understanding is improving. The trough of disillusionment may still come, but the plateau of productivity which follows is sure to be longer lasting.

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