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Cloud-based Data Services—Identifying the Benefits and Potential Pitfalls

Cloud-based Data Services—Identifying the Benefits and Potential Pitfalls

At least one silver lining emerged from the Covid-19 pandemic for the financial services industry: most capital markets firms on both sides of the industry appear to have coped well with the initial disruption. Pretty much all of these firms have adapted well to the new dispensation. Much of that flexibility and speed of adaptation can be attributed to the maturity, availability and pervasiveness of cloud-based data and technology services. All provided firms with much-needed operational resilience and a reliable means of accessing critical data and technology services—regardless of where their employees were based.  

The Panel

  • Trevor Hicks, Chief Technology Officer, Wetherby Asset Management
  • Christopher Thomas, Vice-President, Director of Delivery Platform Strategy, FactSet
  • Joe Peters, Head of Data Development, Bridgewater Associates
  • Moderator: Victor Anderson, Global Content Director, WatersTechnology

In a recent webinar sponsored by FactSet, Cloud-based Data Services—The Obvious Choice, much of the discussion between the four-person panel was around the all-important technology and operational issues that buy-side firms tend to underestimate when developing and forming relationships with providers of cloud-based data and technology services. The benefits are well documented—faster time to market than if buy-side firms were to develop similar services/technologies in-house, and access to the latest technologies and services they simply could not develop internally because of a lack of technical expertise and resources. But what about the potential pitfalls associated with cloud-based services? What are the issues that buy-side firms need to be aware of so that they can manage their expectations and mitigate any operational risks that might arise from such services? 

While the panel covered a range of topics, the most pertinent to buy-side firms considering cloud-based services was what they most often underestimate, specifically in terms of operational and technical complexity. “One of the things that is easily underestimated is multi-cloud integration,” explained Trevor Hicks, chief technology officer and head of compliance at Wetherby Asset Management, based in the San Francisco Bay Area. “You go out and look for a new service or new cloud platform or data provider and the platform looks great, but you really have to take a step back and look at the rest of your environment and consider how it fits into what you’re trying to accomplish on your entire cloud journey. Does it fit well, are there other options, and how can I tie these things together?” 

Hicks is quick to acknowledge the significant benefits that cloud services provide end-users, especially when it comes to predictability of costs and the scrubbing and normalizing of data. Although, on the downside, he cites a lack of control and general inflexibility—two potential pitfalls that buy-side firms should be aware of from the outset. “Sometimes these systems are a little more rigid than you might have on-premises or if it’s your own data—you have to conform to a vendor’s dataset or platform in most cases. Being aware of that and knowing that your business processes might have to adapt to the new platform is important,” he explained. 

Data Connectivity

According to Christopher Thomas, director of delivery platform strategy at FactSet, the most significant issue for buy-side firms to consider when moving to the cloud is connectivity across datasets. “A lot of our clients are moving to the cloud to make data accessible within the organization,” he explained. “It may be a legacy-siloed infrastructure where certain teams only have access to certain databases, so the goal is to open up the data to the organization. But, even if you’ve done this, it doesn’t mean that all of the out-of-the-box data can seamlessly connect. This is a challenge we’ve faced as a data aggregator for 40 years: How do you make [applications/datasets] talk, and how do you make them link and work [together]? This is an area that, since late 2020, I’ve had dozens of conversations with clients about.” 

Thomas added that the cloud has allowed FactSet to provision and distribute data a lot faster than traditional delivery models allow, although there are still challenges around what he described as “understanding data” for buy-side firms. This means that firms such as FactSet need to help clients in that regard so that they spend less time “learning” data and more time making investment decisions. 

Advice 

When asked what he would advise counterparts at similar investment managers regarding what to watch out for when embarking on a cloud strategy, Joe Peters, head of data development at Westport, Connecticut-based Bridgewater Associates, had a few pieces of advice. “First, you need to be able to find the data you’re looking for and you need to be able to procure and license it,” he explained. “Then you need to be able to integrate it well. And then there’s supportability—the flexibility that you have now and whether you will continue to get it by going to the cloud.”

Peters went on to explain that the cloud can improve some of those challenges, but not all of them. So then the question becomes one of how firms can shape the service to fit the business. “My one issue to watch out for would be expecting that as soon as you get to the cloud that everything is going to be hunky dory and great,” he said. 

Peters reiterated Thomas’ comments regarding the importance of being able to integrate data elegantly and, to that end, he mentioned the role that application programming interfaces (APIs) can play in helping to integrate data and make it genuinely useful for users. “If you have a problem with data being relatively siloed and inaccessible, how do you facilitate that [integration and accessibility] and make that happen?” he questioned. “The cloud does have native services that can really help you do that, but there is still work to do after you’ve moved to the cloud and that’s where I think the overall strategy and how it works is important.”       

Other topics discussed during this webinar include:    

  • The state of play across the buy side in terms of cloud adoption and trends
  • The benefits and potential drawbacks, including, for example, regulatory implications and best practices for disaster recovery of the single-cloud versus multi-cloud models   
  • The extent to which APIs hold the key to simplifying information exchange and ensuring application interoperability 
  • What buy-side firms should be looking for when vetting and selecting cloud partners/providers
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