What Defines the Cloud?

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Acceptance of the Cloud in financial services is growing and we are definitely seeing the shift, not only amongst our clients, but also among other solution providers that we’ve talked to. We’re noticing, however, that sometimes the line between what is technically a Cloud solution and what is not becomes blurred. So here, we’ll briefly discuss the differences.

There are two types of Clouds: Public Clouds (think Amazon, Apple, etc. focused on retail or consumer type applications) and Private Clouds (focused on specialized industry-specific applications). For investment managers, Private Clouds are really the only type of solution that fits due the fiduciary responsibility of safeguarding client data that every buy-side firm has.

Breaking it down further, there two types of data models: multi-tenant (where data is commingled with others) and single-tenant (where data is not commingled with others). The multi-tenant model is at odds with a buy-side firms’ mandate of safeguarding client data and keeping it private and, since client data is comingled – this is a big “no, no” for investment management firms.

What’s interesting is that as the Cloud becomes more popular, many are latching on to the term as a marketing buzz word which risks losing its value from a true technology sense. For example, a recent article discussed firms creating their own “Cloud” solution when what they really mean is that the firm just created an in-house infrastructure based on virtualization technology. This is not a Cloud at all because it relies on in-house expertise (and expense) instead of a third party. By definition, the Cloud means that you are relying on a third party to provide and maintain the hardware, software and infrastructure to host applications so that you don’t have to worry about the technology end of things and so that the technology scales with you without doing or paying anything extra.

So when reviewing Cloud materials in the press, from vendors, or from other industry sources, be aware of what is really a Cloud solution and what is not. A good way to think about the Cloud from a buy-side perspective is this:

Good = Private Cloud

Better = Private Cloud with Single-tenant Model (no commingling of client data)

Best = Private Cloud, Single-tenant Model, provided by a specialized vendor who can completely outsource the system maintenance side of things (portfolio management/accounting, OMS, FIX connections and trading, third party connections, etc.)