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Hedge Funds Are Focusing On Disaster Recovery Following the Recent Market Volatility

Following the market turmoil in late February, hedge funds are redoubling their disaster recovery and business continuity efforts.

The spike in trading volumes and market volatility on Feb. 27, and the systems issues it revealed, served as the most recent wake-up call for Wall Street to expect the unexpected. In one case, following the market turmoil, an alternative investment firm's back-end storage system, which it uses to back up applications, was unavailable, according to a source who requested anonymity because of the sensitive nature of the failure. As a result, the firm -- like many hedge funds -- is renewing its disaster recovery (DR) and business continuity efforts.

For Lyster Watson, a New York-based hedge fund advisory firm with $2 billion in assets under management, disaster preparedness is an ongoing effort. "Disaster recovery has always been a topic for us to make sure we do have systems in place to protect the firm and to protect our clients," says COO Steven Swain. "As we have evolved and grown, we wanted to make sure the systems we have in place had grown too."

The firm, which offers a fund of funds program that analyzes and invests client assets in other hedge funds, engaged Gravitas Technology to perform a technology assessment and implement a concrete DR plan. Because of Lyster Watson's rapid growth in assets, Gravitas -- which provides consulting, software development and systems integration within the alternative investment community -- determined that the buy-side firm had outgrown its network.

After proposing and implementing the new enterprise-level network, Gravitas helped the hedge fund advisory firm set up a remote, redundant DR site in California that supports real-time replication of Lyster Watson servers. The IT services firm also implemented "mirroring of applications so there's minimal loss of data if there is a switchover from our main site to our recovery site," according to Swain. "It's about protecting data, but it's also about making sure that our business is continuously running."

Investing in Preparedness

According to Jayesh Punater, CEO of Gravitas Technology, "Most funds are interested in disaster recovery and business continuity because investors are requiring that they have several robust back-office recovery sites."

Though Lyster Watson does not conduct its own trades, "We're connected to the market through the hedge funds we invest in," explains the company's Swain. "Before we make investments, we look at the operational side of hedge funds to make sure they have [disaster recovery] systems in place," he adds.

Beyond having redundant systems, disaster recovery also hinges on diligent systems testing and established procedures as well as practice, continues Swain, who notes that Lyster Watson has a dedicated disaster recovery team that meets frequently to ensure that everyone knows what to do in the event of a disaster. Both the firm's IT staff and Gravitas monitor Lyster Watson's systems 24/7. And even though the firm has just 24 employees, every weekend there are two staff members on call.

As a result of proactive planning, Lyster Watson expects to be in constant communications not only with members in its own organization but also its clients and service providers -- including its fund administrators at Bank of New York, accountants, lawyers and technology consultants at Gravitas. In the event that it couldn't access its offices, the firm has an alternative physical site in the New York metropolitan area. If that remote location were unavailable, people could work from home or go to another location since the disaster recovery plan allows it to work from any site that has remote connectivity, according to Swain.

As the alternative investment business matures and increasingly caters to institutional clients, more and more firms in the hedge fund community are adopting these types of technology, Swain points out. "Its another type of insurance you have to have," he says.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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