Cloud Key to Minimizing Risk for Hedge Funds
BobsGuide | Financial Technology
By Tom Lemmon
Remote working creates new challenges for asset managers,
TS Imagine provides a solution.
Moving to remote working has created new headaches for hedge funds through the risk of a “single point of failure” in a portfolio manager’s tech setup, according to Lance Smith CEO and co-founder of TS Imagine.
Smith says that as traders moved away from the office, with its multitude of servers to keep staff online, and into the home where WiFi connection has the potential to be patchy or individual computers can run into problems, the possibility for one fault to have dangerous consequences increased dramatically.
“Working from home can be a really scary thing. You have lots of single points of failure, every single trader login has a single point of failure now so it’s very, very risky,” Smith says.
“If being connected to your risk management system requires you to login to your office computer, that’s a serious problem”
Dr. Lance Smith
A report by The Alternative Investments Management Association (AIMA) and KPMG found that for hedge funds with less than $1bn AUM, online connectivity was a key concern with 33 percent saying it was the greatest challenge they faced since the pandemic began last year. Meanwhile, 26 percent said ensuring employees had a robust WiFi and computer environment had been their firm’s greatest challenge since the pandemic.
Smith says that using cloud software can provide users with more paths to stay online, thereby reducing risk instead of being dependent on fragile systems.
“If being connected to your risk management system requires you to login to your office computer, that’s a serious problem because that can obviously go down. I’m sure most funds have more robust things than that, but nonetheless, it could not possibly be as secure and robust as a cloud-based offering,” Smith adds.
SaaS finally being valued
Smith says that for TS Imagine, winners of three bobsguide 2020 Software Rankings for innovation in the areas of portfolio management, risk management and product coverage, the sudden shift to remote working wasn’t difficult for them as a company, but could have had the potential to cause a lot of problems for their clients. Crucial in preventing those headaches, he says, is the industry’s ability to truly embrace software as a service post-pandemic.
“What that means is everything is already being done for you – disaster recovery, upgrades, everything is being handled by the provider because you don’t want those kinds of headaches and you can now focus more on your actual business,” Smith says.
Key to a successful cloud-based model for hedge funds and asset managers, has been providing openness and flexibility, allowing them to add layers of code on top of the cloud solution, says Smith.
“Clients want the ability to write code on top of the platform. That code could be something relatively mundane like seeing which swaps are resetting over the next three days, or it could be as advanced as writing a new model for a fancy path-dependent security you want to trade,” says Smith.
Enabling clients to write code on top of a cloud solution is not unique to TS Imagine as Smith freely admits, but they were among the first to develop this important innovation, and for a software company that’s been in the game for 27 years, what has been unique is the core value of innovation, Smith says.
“You have to keep reinventing yourself, you have to keep responding as new challenges require new solutions. If you’re a 27-year-old software company and you’re not innovating, you’re not going to be around anymore,” Smith adds.
In recent years, Smith has seen the market become more standardised with financial modelling, allowing for better cloud adoption and confidence in the cloud-based models.
“I learned a long time ago when I first began working on Wall Street that if you have a model that’s “better” than the others and gives you different numbers, you’re probably wrong.”
“The world of finance has really settled down in terms of what the models do and what their limitations are. You can always create new models, but then you have to have new caveats that go with it.”
“Instead we focus on improving the implementation of models, providing better performance, accuracy and transparency into their inner workings. In turn, this means that clients can all use the same models in the cloud, but – importantly – they can still control the inputs into those models.”
In this blog post, we share insight into the basic requirements, key challenges, our approach for a smooth transition from IBORs to ARRs and an outlook for what’s next in the multi-year journey to move away from IBORs.
ED&F Man Capital Markets replaces legacy systems with TS Imagine’s fully-hosted, SaaS solution for high-volume, real-time analytics on cross-asset exchange and OTC trading.
When analysing performance, measuring a portfolio’s actual return answers the “what” and “when” questions –– it tells us what return the portfolio delivered over a specified period of time. While that information is obviously important, the goal of a performance attribution analysis is to go beyond “what” and “when” to explain “how” and “why”.