Examining Cloud Computing in the Investment Industry - An Eze Castle Integration eBook

Examining Cloud Computing in
   the Investment Industry
    An Eze Castle Integration eBook

Table of Contents
I. What is Cloud Computing?
   i. Why Use the Cloud?
   ii. Cost Savings
   iii. Flexibility/Scalability
   iv. Maintenance
   v. Green Benefits
   vi. Concerns and Challenges of Cloud Computing
   vii. Oversubscription & IT Support

II. Understanding Public, Private and Hybrid Cloud Infrastructures

III. Hosted Business Applications: What Hedge Funds Must Consider
   i. Hosted Apps for Business: An Overview
   ii. Key Considerations
   iii. Understanding of Business Requirements
   iv. Security of Data
   v. Migration/Future Growth Concerns
   vi. Other Considerations
   vii. Final Thought on Hosted Apps

IV. A Refresher on Data Center Tiers

V. Eze Castle Integration                           2

With IT budgets tightened over the past year, many hedge funds and investment firms have had to make changes
to their businesses. Personnel changes, budget adjustments, and other tough decisions had to be made along the
way. Both staff and systems were often being closely evaluated. Beyond existing firms, new start ups are entering
an investor market that expects them to have sophisticated processes and operations day one.

More than any other industry, investment firms rely on premier technology for swift trade execution, secure data
protection and much more. If it is determined that the IT budget needs to be reduced, the question is “how?” What
is the best way for an investment firm to save on IT costs but without sacrificing efficiency and performance?
Alternatively, how can a hedge fund start up have enterprise‐level technology day one with a small firm operating
budget?

The answer is cloud computing, and believe it or not, cost isn’t the only reason firms are making the switch.

                         What is Cloud Computing?
Although cloud computing has become popular in recent years, many businesses and financial firms still do not
understand what it is and how it works. Cloud computing is when a service or software application is hosted in a
web‐based repository – known as the “cloud.” The service is hosted by a third‐party provider who then provides
access to that service to users on an on‐demand basis. In essence, a firm’s data and applications are hosted,
alleviating that firm from having to purchase and maintain costly infrastructure in‐house.

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Why Use the Cloud?
Cloud computing can support front‐, middle‐ and back‐office functions – everything from business applications
and client relationship management systems to data management solutions and accounting systems.

There are a number of advantages to using this model, notably:
    Low infrastructure investment

    Increased flexibility

    Less maintenance

    Positive environmental contributions

Cost Savings
There is no question that migrating to a cloud computing model
can render significant cost‐savings for an investment firm.
Rather than purchasing costly infrastructure and relying on multiple servers in a crowded Communications
room (comm. room), firms can outsource that infrastructure to a third‐party and manage all of their data and
applications from a simple web address on the Internet. This system is particularly beneficial to start‐up firms
who may not have the upfront capital to invest in their own infrastructure or the staff to maintain and monitor
a comm. room.

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Flexibility/Scalability
One of the most beneficial aspects of cloud computing is that firms are only required to pay for the resources and
capabilities they need. With traditional infrastructure models, firms must invest in advanced servers and storage
devices that generally come at fixed costs. Cloud computing is uniquely flexible and scalable, operating on a utility
basis ‐ allowing firms to pay as they go and only for the resources they will use.

In many cases, firms can take advantage of advanced mobility features through which they can access their hosted
applications and data from anywhere at any time, freeing employees from having to remain at their desks during
normal business hours.

Because the cloud computing solution is virtualized, there are other distinct advantages not offered by traditional
infrastructure models. Space, storage, and RAM are quick and easy to add. There is no need to wait for quotes to be
drafted and equipment to be ordered and shipped. Instead of taking days, your firm’s needs are fulfilled in a
matter of hours. Cloud computing also supports a sharing of resources among multiple users – also known as
multi‐tenancy – which allows for increased utilization and efficiency.

Less Maintenance
Unlike traditional infrastructure models where the firm is solely responsible for its own IT needs, the cloud
computing model puts all of the responsibility on the third‐party provider. Firms are no longer tasked with
managing constant server updates, hardware installs and other computing issues. This allows the firms’ internal
IT staffs to focus on more business‐critical matters and spend less time on mundane and time‐consuming
maintenance issues. Or in the case of many smaller firms without internal IT staffs, it saves them from having to
hire and train additional employees.
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Green Benefits
The idea of using the Internet as a gateway to technology has significant
environmental benefits. The resources and energy needed to maintain and
manage a dedicated comm. room can be astronomical. Power, cooling, and basic
energy supply equipment must be at peak performance at all times in order to
facilitate maximum uptime for investment firms. In the case of cloud computing,
however, firms don’t need to host internal equipment, thereby saving on all‐
around energy costs.

The reduction of overall energy consumption is also multiplied with third‐party
providers utilizing custom data centers specifically designed for better energy
efficiency. Additionally, many new computers are now optimized for virtualization, adding another layer of
efficiency and using significantly less power for operation.

Concerns and Challenges of Cloud Computing
Despite its clear advantages, the notion of cloud computing is still meeting a lot of resistance in the financial
services industry. Investment firms tend to be concerned with data security and performance. Many firms are
reluctant to migrate to virtualized platforms because they don’t fully understand the system and its benefits.

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Privacy and security concerns are common among financial firms given the sensitivity of their data. The idea of
hosting this sensitive information on the Internet is not always a comfortable one. Third‐parties that provide cloud
computing services, however, are quick to point out that the system is just as secure as maintaining one’s own
equipment, with comparable data protection measures, firewalls, security checkpoints and passwords as
traditional infrastructure models. Performance concerns, as well, seem to be easily thwarted by third‐parties, who
insist cloud computing is just as efficient and effective as non‐web hosted systems.

Despite concerns, over the last couple of years financial firms have become more comfortable with the idea of
cloud computing, particularly given its price point. With the economic climate as it is, the cost‐effectiveness of
cloud computing has proven to be one of its strongest motivators. Technology analyst firm Gartner Inc. concluded
that spending on cloud computing and virtualization solutions has increased, despite a decrease in overall IT
spending in 2009. According to Gartner, cloud computing revenue is on pace to exceed $56 billion this year, an
increase of 21 percent from 2008 (Wall Street Journal, 10/21/09).

When considering cloud computing, a firm must rely on its own needs and resources in order to determine which
technologies are best for them. There are a number of factors to be considered: cost, efficiency, maintenance, etc.
Firms should assess their individual needs and determine the best strategy based on their current resources and
requirements.

In the following chapter we will look at the differences between public, private and hybrid clouds.

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Understand Public, Private and Hybrid Cloud Infrastructures

As we have discussed in previous chapters, cloud computing offers many advantages for investment firms. Cloud
computing technology enables the sharing of resources in a way that dramatically simplifies infrastructure
planning. In this section, we will explore various types of cloud computing and the methods in which they are
deployed.

With cloud computing technology, large pools of resources can be connected via private or public networks, to
provide dynamically scalable infrastructure for application, data, and file storage. Additionally, the costs of
computation, application hosting, content storage, and delivery can be significantly reduced. Firms can choose to
deploy applications on Public, Private, or Hybrid clouds.

What are the differences between these three models, and how can you determine the right cloud path for your
organization? Here are some fundamentals of each to help with the decision‐making process.

Public Clouds
Public clouds are owned and operated by third party service providers. Customers benefit from economies of
scale, because infrastructure costs are spread across all users, thus allowing each individual client to operate on a
low‐cost, “pay‐as‐you‐go” model. Another advantage of public cloud infrastructures is that they are typically larger
in scale than an in‐house enterprise cloud, which provides clients with seamlessly, on demand scalability.
It is also important to note that all customers on public clouds share the same infrastructure pool with limited
configuration, security protections, and availability variances, as these factors are wholly managed and supported
by the service provider.
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Private Clouds
Private clouds are those that are built exclusively for an individual enterprise. They allow the firm to host
applications in the cloud, while addressing concerns regarding data security and control, which is often lacking in
a public cloud environment. There are two variations of private clouds:

 1. On­Premise Private Cloud: This format, also known as an “Internal Cloud,” is hosted within an organization’s
    own data center. It provides a more standardized process and protection, but is often limited in size and
    scalability. Also, a firm’s IT department would incur the capital and operational costs for the physical
    resources. This model is best used for applications that require complete control and configurability of the
    infrastructure and security.

 2. Externally Hosted Private Cloud: This private cloud model is hosted by an external cloud computing provider.
    The service provider facilitates an exclusive cloud environment with full guarantee of privacy. This format is
    recommended for organizations that prefer not to
    use a public cloud infrastructure due to the risks
    associated with the sharing of physical resources.

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Hybrid Clouds
Hybrid Clouds combine the advantages of both the public and private cloud models. In a hybrid cloud, a company
can leverage third party cloud providers in either a full or partial manner. This increases the flexibility of
computing. The hybrid cloud environment is also capable of providing on‐demand, externally‐provisioned
scalability. Augmenting a traditional private cloud with the resources of a public cloud can be used to manage
unexpected surges in workload.

At Eze Castle Integration, we have deployed a robust, scalable cloud Infrastructure in multiple Tier III and IV data
centers. Our Eze Cloud infrastructure leverages best of breed technologies to deliver cost effective infrastructure
as a service powered solutions to the investment industry.

Now let’s look at application hosting in the cloud and what firms should consider.

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Hosted Business Applications: What Hedge Funds Must Consider

As we discussed in the previous chapter, there are many reasons why a hedge fund should consider cloud
computing. Now we will look more closely at one aspect of cloud computing — application delivery.

Within the cloud model is Software as a Service (SaaS) –
software that is deployed over a hosted environment and
accessed via the Internet. An on‐demand licensing service, SaaS
enables the benefits of a comprehensively licensed application
without the need to specifically equip multiple servers and
infrastructures with necessary applications.

With increased focus on Web 2.0, cloud, and SaaS during the
current economic crisis, the emergence of hosted applications
has provided firms with an alternative to traditional onsite IT
infrastructures. Companies such as Google and Amazon have invaded the application hosting domain and are
offering their services at a fraction of the price of most third‐party IT service providers. While these are low‐cost,
they are not necessarily the best choices for investment firms.

The following section will outline the key considerations firms should look at before turning their businesses over
to free or low‐cost hosted services such as those offered by Google or Amazon. Before we introduce these
considerations, let’s take a look at the business models of these hosted apps providers, particularly Google.

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Hosted Apps for Business: An Overview
Over the last two years, hosted applications have emerged as a powerful and intriguing service. A number of large
companies, many not traditionally focused on IT services, have come out of the woodwork looking to offer these
services on top of their base business models. Everyone from Cisco and IBM – technology‐focused companies – to
Google and Amazon has started using the cloud. Google’s Business Apps emerged as a front‐runner early on, led
both by an intriguing business model and, of course, the biggest name within the Internet business.

Among the key features Google advertises are proven cost‐savings, a 99.9% uptime guarantee, and 50% more
storage than the industry average. Google even offers multiple editions of their apps “tailored to specific customer
needs.” In addition to their Standard Edition, they offer an Education Edition for schools, colleges, and universities
and a Premier Edition for “businesses of all sizes”.

                                                        Key Considerations
                                                        While Google’s price point is likely the lowest a business
                                                        will find, the level of service offered at that price must be
                                                        thoroughly vetted before entering into an agreement,
                                                        particularly if you are an investment firm operating in
                                                        today’s market. There are a number of specific
                                                        considerations that should be taken into account
                                                        beforehand.

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Understanding of Business Requirements
While Google boasts that their various editions are tailored to meet the specific needs of businesses, this is not
exactly a fair statement. The description of their Premier Edition lists the services as ideal for “businesses of all
sizes.” But it is not solely a business’ size that determines their specific needs. For example, a small home‐grown
business in Oklahoma that sells personalized stationery is not going to have the same business needs or support
requirements as an investment firm operating on Wall Street. This is where financial firms need to be careful not
to jump into a service based solely on cost alone.

A firm must carefully consider their every‐day business and support requirements before migrating to a service
like Google’s.

Compliance of Data
One of the foremost concerns when any business puts their data and infrastructure in the hands of a third‐party is
security. Google lists “security and compliance” as one of the key features of their product, and did eventually
bring on e‐mail security provider Postini to provide additional security services. These services are basic, though,
                                    offering tools to eliminate spam, protect against internal information leaks, and
                                    retain emails. These tools are sufficient for small mainstream businesses;
                                    however, investment firms require increased compliance measures, including
                                    email archiving and encryption, on a daily basis.

                                    E‐mail is a business‐critical application for many firms and basic security is not
                                    enough. As we move into an era of increased transparency and calls for strict
                                    compliance regulations, firms will require significant security and compliance
                                    measures to keep their data protected, encrypted or archived at all times.
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Migration/Future Growth Concerns
Another consideration to keep in mind when determining if hosted applications are a good fit for your firm is your
potential for future growth. With Google Apps, there is no easy way to migrate data if a firm decides to move its
data off of the hosted app service. As your business grows, you should keep in mind that with that growth will
come the need for additional services and requirements. It is highly likely that you will need to integrate with IRM
and CRM systems, for instance, which is not possible when using a service like Google. In the event you suddenly
require these services, migrating your data off of a Google‐like platform is going to be complicated and likely time‐
consuming.

Oversubscription & IT Support
A big concern that arises when giant enterprises such as Google offer paid services at a very low price point is
oversubscription. Because the service is offered at low cost and to virtually any size business, it is destined to
attract tens of thousands of customers, each vying for the maximum server space available. In an attempt to
provide these services to this many customers, it is a very real possibility that the service provider will
oversubscribe their servers and risk shoddy service as a result.

With this number of users, speed of service is likely to be negatively impacted. It could take significantly longer to
send or receive an email – a delay that those operating in the investment industry cannot afford. If a firm is relying
on email for business operations, particularly in a volatile market, when every deal and every dollar can have a
significant impact on business, that firm requires real‐time services that will not put business at risk.

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In addition to concerns about the service provider oversubscribing servers, firms might also want to consider the
possibility that their employees will likely be spending a significant amount of time learning how to use a hosted
application service. For example, if a firm signs on to use Google Business Apps, they will need to train all
employees to use that service and likely train internal IT employees to become well‐versed on the service in the
event of application issues.

Though Google boasts that it offers 24x7 customer support for its apps service, it is far from a typical helpdesk.
Customer support through an entity like Google is often challenging to navigate and time‐consuming to get
another human being on the opposite end of the phone. In the event of a serious IT issue, end‐users’ employees
will need to have an extensive understanding of the hosted service in order to provide adequate support.

Alternatively, if a firm does not have IT staff, other
employees will need to learn to solve problems on their
own, which can interrupt the time they are spending on
their daily business tasks. In a CNN Money article,
Founder Jonathan Blum of Blumsday LLC, a business‐to‐
business tech content company, wrote about how
Google Apps wasn’t working for his company. Blum said
he and his employees were spending too much time
each day resolving issues. “You’re paying people while
they struggle through this cultural shift to Web‐based
applications – and that can be very costly.”

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Other Considerations
Blum also highlighted another issue he encountered when he relied on Google Apps for his business services:
identity concerns. Because Google is entirely web‐based and allows for multiple email accounts through its
service, it can lead to identity confusion. There can be easy confusion between corporate and personal Gmail
accounts. Also, if employees share computers, they will need to be extra cautious and careful not to save their
account logins and passwords on shared portals.

Investment firms should also be thinking about the kind of best practices they are employing. Business continuity
and disaster recovery plans are becoming near‐requisites for most investors. Mass‐marketed hosted applications
typically do not include such services. Firms would, therefore, have to work with two separate third‐parties to
accommodate this desired outcome.

Final Thought on Hosted Apps
Hosted applications will surely continue to improve and adjust to the changes in the business landscape, but while
there is value in their services, investment firms have very specific needs and requirements and should work with
technology providers with financial expertise and experience. These traditional third‐party IT providers are better
equipped to service the needs of financial firms and adapt to the continuous changes within the industry.

Our hosted IT solution, Eze Virtual Office, for example, offers hedge funds the capabilities of a fully managed
infrastructure and key business applications that are 24x7x365 by IT professionals that understand a hedge fund's
business.

Now let’s explore what’s behind cloud computing — Data Centers.
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A Refresher on Data Center Tiers
In the previous chapters we examined the pros and cons of cloud computing. In this section we’ll explore what’s
behind the cloud — the data center that is. At Eze Castle Integration we often reference data center tiers (i.e. Tier
III and Tier IV) in our written materials and assume readers will automatically understand the value of these
distinctions. In some cases this might be a safe assumption, but you know what they say about assuming.

Data center tiers – Tier I to IV – represent a standardized method to define the uptime of a data center. The tiers
are useful in measuring:
     Data center performance

     Investment

     Return on investment (ROI)

The four tiers, as classified by The Uptime Institute include the following:
    Tier 1: composed of a single path for power and cooling distribution, without redundant components,

      providing 99.671% availability. This is the simplest and typically used by small businesses.
    Tier II: composed of a single path for power and cooling distribution, with redundant components,

      providing 99.741% availability.
    Tier III: composed of multiple active power and cooling distribution paths, but only one path active, has

      redundant components, and is concurrently maintainable, providing 99.982% availability.
    Tier IV: composed of multiple active power and cooling distribution paths, has redundant components, and

      is fault tolerant, providing 99.995% availability.

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Data center tiers are becoming increasingly important as hedge fund and investment firms look to cloud
computing infrastructures to increase agility, reduce operating costs, and simplify IT infrastructure and
application management. Our Eze Cloud infrastructure is built across multiple Tier III data centers to deliver the
availability and performance investment firms require.

As a hedge fund evaluates its data center options for colocation or explores why cloud computing may be right for
the hedge fund it is essential to understand the differences between each tiers.

                                                                                                 Image Credits: Greybar
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Eze Castle Integration's Cloud Computing &
         Hosting Infrastructure for Hedge Funds
Eze Castle Integration has deployed a robust, scalable Cloud Infrastructure in multiple Tier III data centers. Our
Eze Cloud infrastructure leverages best of breed technologies from Cisco, NetApp, and VMware as well as monthly
software leasing services from VMware, Microsoft, CA, and Citrix to deliver cost effective managed product
offerings and custom solutions to our hedge fund clients.

Eze Castle’s cloud offerings allow our clients to deploy state‐of‐the‐art technologies through a monthly recurring
cost model rather than facing the challenge of major capital expenditures and budgeting for hardware and
software upgrade lifecycles.

A few of the primary benefits of the Eze Cloud infrastructure include:
     Redundancy

     Secure Multi‐Tenancy

     Resource Provisioning

     Expandability

     Professional Management

For more information on our Eze Cloud Infrastructure, please visit http://www.eci.com/solutions/infrastructure/
cloud.html.

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About Eze Castle Integration
Founded              1995

Mission              To be the leading provider of IT services and technology solutions to the
                     investment community worldwide

Headquarters         1 Federal Street
                     Boston, Massachusetts, 02110
                     617‐217‐3000

Additional Offices   New York City, Chicago, Dallas, Geneva, Los Angeles, Minneapolis, San
                     Francisco, Singapore, Stamford and London.

Website & Blog       www.eci.com
                     www.eci.com/blog

Core Services           Strategic IT Consulting               Business Continuity Planning
                        Outsourced IT Solutions               Disaster Recovery
                        Professional Services                 Compliance Solutions
                        Managed Services                      Storage Solutions
                        Cloud Computing                       Colocation Services
                        Startup & Relocation                  Internet Service
                        Communications Solutions              E‐Mail & IM Archiving
                        Network Design & Management
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www.eci.com — eci.marketing@eci.com — 800‐752‐1382

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