Hedge Fund Chief Technology Officers (CTO) face a litany of responsibilities ranging from:

• Maintaining the technical infrastructure necessary to run their firms
• Overseeing regulatory compliance in the technology stack
• Guarding the firm’s non-public data and systems
• Managing critical investment and trading systems
• Shepherding the firm’s adoption of future technology paradigms

To deal with each challenge effectively and comprehensively, CTOs need to narrow their focus to the key issues that involve protecting the firm and their investors and ideally giving the firm a competitive advantage.

Infrastructure / Support tasks can in some cases be removed as a distraction and partially or wholly outsourced to a Managed Service Provider (MSP), a company that remotely manages a customer’s IT infrastructure, applications and / or systems. Often, leveraging the right MSP will allow a fund to redirect their investments in physical infrastructure and onsite support of that infrastructure to other more mission critical projects. With the right MSP partner, a fund can scale quicker and create a robust infrastructure, supporting enhanced performance and productivity, while leveraging the deep and specialized expertise of the MSP. This is especially true with the popularity of Azure and AWS, where the right MSP has deep expertise in leveraging these environments and locking them down securely, an expertise that many funds do not want to hire for internally.

The decision to use an MSP may seem straightforward. But, in order to use an MSP successfully, several factors must be thought through before even engaging with the MSP. (Note that, while we assume you are working with MSPs for the first time, even if you currently have an MSP and are looking to replace them, our subsequent advice is still relevant!) When FinServ performs a vendor selection for our clients in the MSP arena, we focus on the following key questions and on documenting the existing state of key items to facilitate the transition:

MSP Goals

In order to successfully choose and onboard an MSP, it is critical to understand and document the main goals you are ultimately trying to accomplish and how. Consider the following:

IT Current State

The MSP’s responsibility is to take on the tasks that your current IT staff is doing. How do you communicate that clearly and succinctly to the MSP so that both parties have a common understanding of what tasks are in scope?

The answer lies in having a full understanding of what your existing IT footprint is and what your current IT staff does. Rationalizing their current roles and what the target operating model will be is crucial to a successful transition.

To effectively outsource tasks that were handled internally to an external party, it is critical to understand all tasks that your staff does, system dependencies and external dependencies. Once you have a holistic picture, you can then go through the exercise of segregating tasks that will be outsourced and those that will remain in-house. With a clear definition of the tasks that you expect the Managed Service Provider to take on, the expected roles and responsibilities will start to become evident.

To achieve this goal, FinServ developed a “Functions of a Hedge Fund” map which allows us to review all the functions you have and then efficiently highlight which functions will be targeted for partial or full outsourcing. This becomes a key document to share with the vendors during the selection process.

Questions to ask yourself include:

• Do you have a complete and well documented picture of your firm’s IT hardware and applications?
• Do you have a comprehensive and well documented view of what the IT staff does? Ask yourself, your managers and your staff. This operational assessment exercise might surface some unexpected discrepancies in your understanding of their tasks to what they actually are
• Which tasks will be outsourced?
• Does the MSP have the resourcing / skill-set to do those tasks effectively?
• How will the MSP be enabled to do those tasks effectively?

The FinServ team are experts in comprehensive current state documentation. We can quickly document these current state items to ensure the selection process is based upon your firm’s unique footprint and requirements.

Choose and Assess the MSP

As the technology thought leader, you should determine and agree on how you will choose the MSP. Choosing an MSP is no small task and to give yourself the best chance at success, this needs to be carefully considered. Having an experienced consultant like FinServ with specific knowledge of the MSP marketplace and industry trends can increase your firm’s chances for success.

Onboarding and Managing the MSP Relationship

Equally as important as selecting the right MSP for your firm, ensure you can properly onboard and manage the MSP. In most cases, we have seen that clients do not have the dedicated resources to see this part of the MSP process through. Should that be the case, it is critical to get an experienced consultant like FinServ who can provide dedicated expert resources to lead you through the process.

Once the MSP is onboarded, they will need to be managed – you will need to have measures of success in place to measure the MSP’s performance. As part of the selection process, meeting with each MSP candidate to review their understanding of how you will evaluate their performance is critical. Consider items such as:

Summary

If any of these themes resonate with you and your organization, please reach out to FinServ. FinServ has advised and managed multiple Funds through selecting and onboarding a Managed Service Provider.

By leveraging our methodologies and industry best practice tools we can expedite your selection and ensure a successful onboarding process saving both time and money and ensuring this complex and critical process meets the goals you set for it at the start.

If you already have an MSP, but they are not providing the services that you require, the same thought processes and best practices are still relevant when replacing your existing MSP.

Throughout our 15 years of existence, we have proven that our deep industry knowledge combined with our project management and overall best practice methodologies can be an asset to your organization. To further continue the conversation or to discuss more of FinServ’s capabilities, please contact FinServ at info@finservconsulting.com or give us a call at (646) 603-3799.