It is no secret that the costs of cloud-based software applications have reduced considerably over recent years. Furthermore, developments in cloud service provider security are starting to allay the concerns of investment technology heads and regulators to the extent that cloud solutions now present a powerful message that in these harsh economic times can no longer be ignored writes Mick Brant, CEO of Teknometry.
Despite major advances in recent years, fears over cloud-based performance measurement and other applications persist. Even some Heads of Technology at major institutions quake at the mere mention of the ‘c-word’. How much of this fear is generated by a lack of understanding, ‘empire protection’ or genuine concerns is difficult to estimate. Yet the impact of moving applications to the cloud on the total cost of ownership is immense, in terms of the reduction in licence fees, hardware costs and operating costs such as administration, back up and other housekeeping functions.
Cutting costs and gaining operational efficiencies
For example, a recent CEB TowerGroup report cited increasing worries around meeting performance and returns objectives. Asset managers face intensifying pressures on pricing, shifting investor preferences, regulatory burdens and an increasingly sophisticated fund landscape. Byshifting their technology deployments to the cloud, CEB TowerGroup believes that firms will cut costs and gain operational efficiencies. It also believes that the industry will increasingly favour an integrated analytics platform over discrete applications for performance, attribution, risk, and investment decision support.
For example, today’s cloud-based performance applications provide sophisticated query and visualisation tools to monitor and analyse performance, attribution and risk on an integrated platform. Additionally, in a multi-tenanted format, cloud-based analytics solutions offer rapid deployment and subsequent upgrades while maintaining customer isolation. These solutions are often also able to utilise existing data sources and workflows with very little procedural change, to facilitate migration measured in weeks, rather than months.
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Sharing of resources
Furthermore, cloud-based software can allow resources to be shared across the platform by employing resource-scheduling technology that scales dynamically as clients sign on to their own secure realm. This can facilitate a ‘Pay As You Grow’ pricing model based on volumes and the services used, rather than a traditional software licence model, making the service attractive to a broader range of investment organisations.
The key is a secure and flexible cloud platform that offers resource allocation services that the service provider can leverage in the application architecture to allow the dynamic allocation of processing and storage resources based on the number of active users and tasks. A good example is Microsoft’s Azure cloud service, which also offers software providers other benefits such as in-built geo-replication of data and switching in the event of failure. This type of capability has attracted a great number of niche software providers to the investment management industry for good reason: the technology costs are minimal compared to on-site installations.
Security remains a question mark
Security, whether in the cloud or on-site, is always a concern for investment management firms. Contractual and regulatory obligations place a duty of care in relation to client data and security, control, access and auditability have been considered much easier to manage in an on-site installation. Cloud service providers have responded by improving security, and engaging with the regulators to better understand and address these issues.
For example, Azure‘s geographically dispersed data centres comply with key industry-standard procedures for security and resilience, which are independently audited. In addition, many cloud-based applications have an additional layer of security and the providers will regularly have their own vulnerability tests carried out.
Private cloud, where companies offer remote services to their clients via their own data centres, is commonplace in large financial institutions. The rationale is that you get all the scalability and metering benefits of a public cloud service without ceding control and security to a service provider.
However, this can be a costly solution as it is unlikely to attract the economies of scale that the global cloud providers can offer or the cost saving from dynamic resource allocation. There are also no guarantees that a private cloud installation will be any more secure, as high profile security breaches at companies such as Sony have highlighted.
More and more investment management firms are looking at cloud technology to achieve scale, cut costs and improve time to market. While many industry professionals would agree that cloud computing is gaining traction in investment management firms, there is still much debate as to whether it will ever be wholeheartedly embraced. Yet if security is the final hurdle and investment management margins remain under pressure, few would argue with the fact that cloud technology now presents a compelling proposition for investment firms, leaving no doubt that cloud-based applications are here to stay.