Is the Cloud a Viable Hedge Fund BCP/DR Solution?

Cloud computing based information technology and business continuity and disaster recovery

("BCP/DR") solutions have becoming increasingly popular in recent years among the hedge fund and

private equity communities. Indeed, many investors seeking to perform operational due diligence on

fund managers may have come across more and more funds utilizing the cloud as of late.

It is important for investors to understand exactly what the cloud is and both the challenges and

opportunities it presents to fund managers, particularly in relation to BCP/DR.

What is the cloud?

In the context of evaluating fund BCP/DR infrastructures, the

cloud can effectively be thought of by investors as an internet

based offsite solution.

There are three types of cloud computing, all of which are

typically classified with the ending, "as a service." They are:

Platform as a service ("PaaS") - under this model

service providers provide a computing platform

solution to funds such as an operating system or web

server.

Software as a service("SaaS") - this model allows funds to run and access applications on

cloud based servers.

Infrastructure as a service ("IaaS") - under this model service providers offer funds access to

virtual machines, storage space and data centers via the internet.

How do fund managers utilize the cloud for BCP/DR planning?

Hedge funds and private equity funds are increasingly incorporating cloud based components into

their BCP/DR plans in several ways:

Data storage - increasingly it is cost effective for firms to archive data offsite on cloud based

servers. This reduces expenditures on new servers and frees up office space for other

equipment and personnel

Data backup - Cloud based data storage centers typically serve a high volume of customers

and

are therefore designed to handle large scale

data transfers. These facilities are also typically designed with BCP/DR planning in mind, and

may be more robust in both equipment and design than an individual fund manager’s system

Application backup - Fund managers may utilize cloud based solutions to serve as a backup

location from which applications could continue to be run, in the event of a business

disruption or disaster type event. The continued operation of applications during such an

event may be particularly critical for quantitative or high-frequency trading strategies.

What should investors ask their fund managers about the cloud?

The cloud presents a number of attractive benefits to fund managers. As part of an evaluation of a

hedge funds BCP/DR planning, investors should take the time to understand how their fund

managers may make use of such technologies. Some key issues investors may want to consider

addressing include:

What measures has the hedge fund taken to evaluate the BCP/DR planning procedures of

the cloud provider?

How does the hedge fund monitor the testing and oversight of the BCP/DR plan at this

provider?

What measures has a hedge fund taken to address security concerns related to storing data

and running applications at third-parties?

Does the fund manager incorporate testing of access to cloud based data and applications

as part of its own BCP/DR tests?

Has the fund evaluated the cost benefit analysis of utilized cloud based technologies versus

bringing such technologies in house? At what point would any cloud benefits be outweighed

by internal cost considerations?

While the increased use of the cloud may be the hottest trend among hedge funds for BCP/DR data

storage and application development. Investors should take care to understand if a hedge fund has

carefully evaluated their use of this new technology, or if they are simply jumping on the bandwagon.

Originally posted in the August 2012 edition of Corgentum Consulting's Operational Due Diligence

Insights.

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Tel. 201-360-2430 About Corgentum Consulting: Corgentum Consulting is a specialist consulting firm which performs operational due diligence

reviews of fund managers.

The firm works with investors including fund of funds, pensions, endowments, banks ultra-high net-

worth individuals, and family offices to conduct the industry's most comprehensive operational due

diligence reviews. Corgentum's work covers all fund strategies globally including hedge funds, private

equity, real estate funds, and traditional funds. The firm's sole focus on operational due diligence,

veteran experience, innovative original research and fundamental bottom up approach to due

diligence allows Corgentum to ensure that the firm's clients avoid unnecessary operational risks.

©2012 Corgentum Consulting, LLC