How IT outsourcing allows Hedge Funds to maintain top performance for their funds and their investors

While the performance in 2024 has been moderately positive year-to-date, the hedge fund industry faces the challenge of safeguarding these gains against a multitude of domestic and international factors that remain at play for both your Prime Broker (PB) and IT provider. Both are aligned with your success in risk mitigation and their mutual cooperation couldn’t be more important. As the only global IT provider from the HF industry, Thrive recognizes the cooperative roles each entity plays in ensuring the safety of a well-performing fund for the benefit of your investors. 

Alignment for Better Business Outcomes

At the core of any risk strategy lies the identification and assessment of risks. For your PB, real-time consideration of portfolio risks and periodic reviews of operational risks is essential. Since leverage has plateaued since 2008 (affecting fee generation), managing risk is pivotal for a healthy PB relationship. Balancing the quality of your portfolio to allow for an optimized margin balance will be something everyone wants and will be based on a number of factors you can evaluate such as correlation risk, historic sharpe ratio, derivative pricing confidence, collateral quality, counterparty credit worthiness among others.  This falls largely on the COO or CFO, and their operations team to ensure the most beneficial and accurate treatment is being extended to the firm.  Meanwhile, consider that your IT provider is similarly aligned with your fund’s success, of course farther removed from your portfolio details, while being intimate with the tools, connectivity, and counterparties that you depend on. 

Qualification of a Managed Security Services Provider (MSSP) 

In today’s landscape, IT providers must resemble cybersecurity businesses (MSSPs) to succeed. Most platforms default to convenient configurations rather than secure ones, prompting the SEC to mandate inventorying these data points from an IT risk perspective. While your engagement policies may appear as checkboxes to auditors, real-time anomaly reporting against these policies is fundamental for responsible competition and scaling in the multi-cloud environment. Over the years, top IT providers like Thrive (through its acquisition of Edge Technology) and premier PBs have collaborated to set reasonable standards that protect market interests. Prior to the pandemic, we led a campaign together with a global prime broker to enforce encrypted communication via TLS across common client mail systems, as this was a standard practice we encouraged with most clients.  Together that raised an important awareness and potentially thwarted some amount of phishing while people learned to become better trained.  

However, the recurrent nature of the cybersecurity topic now verges dangerously close to echoing a broken record, even as its significance remains paramount. We observe a shift from ransom-focused malware to outright wipe-ware, emphasizing the need for robust security measures as motivations go from ransom to outright harmful intent by coordinated state-actors. At Thrive, we advocate for a mesh of security services that provide real-time event generation and response, extending network and domain policies beyond office boundaries to multi-cloud services using Secure Web Gateways. Today’s rate of easy adoption of many young emerging technologies is both promising and eerily similar to showing the same weaknesses of the earlier industry.  Wrapping a mesh of security around these younger offerings enables the same balancing act can be achieved and a competitive fund can leverage newer technologies with more confidence. While technology lacks a UL listing, a balanced practitioner’s approach can maintain top performance for you and your investors. 

Feel free to reach out if you would like to learn more about technology outsourcing for financial services. Our team of subject matter experts are ready to help you meet your desired business outcomes.