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Vendors race to beef up hybrid cloud service models

cloud computing

State Street’s Charles River Development is working on a new data delivery platform using Microsoft Azure, as service providers rush to utilize pubic cloud solutions to bolster their asset management service propositions.

President Spiros Giannaros told Fund Intelligence that CRD is building the new delivery solution within State Street Alpha — the front-to-back asset servicing platform launched in 2018 — and is planning to roll out the offering on Microsoft’s storage, database and networking cloud for customers. The new tool, Giannaros said, will be cloud-native, multitenanted and provide an “increase in scale, flexibility and operational controls by leveraging Azure and other innovative tech tools.”

The news comes a month after the Boston-headquartered servicing giant rolled out its investment management solution on Azure.

“This work is underway,” he said. “We are building a data delivery platform in State Street Alpha that supports data curation, persistence and distribution. Data that comes through this pipeline is delivered to clients according to particular data consumption requirements and cloud strategy.”

It marks the second product Charles River is looking to offer on Azure, and comes as companies are increasingly moving their private cloud offerings to public platforms provided by major players like Microsoft, Amazon’s AWS and Google Cloud.

Just last month, BlackRock and Microsoft teamed up to onboard the fund giant’s Aladdin infrastructure onto Microsoft’s Azure cloud [1] platform, a move the world’s largest asset manager said will help drive innovation.

The deal was announced [2] a week after BlackRock CEO Larry Fink suggested that technology, innovation and a long-term view will sort the winners from the losers in the post-Covid-19 asset management sector.

Ever since State Street’s landmark acquisition [3] of CRD for $2.6bn in 2018, the firm has been laying the groundwork for plans to build out its front-to-back investment management and asset servicing solution.

The firm announced last year that it would adopt Azure to deploy the Charles River IMS. The service is the front- and middle-office component of the Alpha platform, a SaaS solution that utilizes a hybrid private/public cloud model on a public platform.

“We’ll look to leverage other things that would typically sit in the private cloud if we see them fit to move onto this platform,” Giannaros said.

Both BlackRock and State Street said the move to Azure was based on increased demand from clients looking for scalable platforms that can adapt to the growing complexities involved in managing data, risk management and advanced analytics.

“Microsoft Azure will provide additional capabilities to service our customers and new opportunities to integrate in our customers’ cloud solutions,” Giannaros said. “This is central to our strategy to provide global scale as an enterprise investment management solution provider.”

Public cloud migration expected to increase

The push toward public cloud platforms is only expected to increase, particularly in the wake of the Covid-19 pandemic, according to an April 30 report by Clearbridge Investments, The New Normal: Remote Work Reshapes Technology.

Amazon and Microsoft experienced massive increases in traffic across their public cloud businesses during the crisis, with the sudden shift to WFH putting a greater focus on cloud to support data management and business resiliency.

According to an Accenture report released in January, Cloud Outcomes Survey: Expectation vs. Reality, which surveyed 200 senior IT executives, nearly two-thirds of companies said they have not yet achieved their expected cloud benefits.

Companies using private clouds tend to lag behind their counterparts leveraging public cloud or hybrid models when it comes to fully achieving expected outcomes, 28% to 42% and 38%, respectively. More than half of public cloud users, 54%, reported having captured their cost-saving goals, yet only 28% said they experienced their anticipated speed-to-market benefits.

“It used to be something firms were doing in-house and now I’m seeing almost everybody starting to talk about the public cloud and offering support there,” said Arnie Wachs, a principal in charge of data management at Cutter Associates, a research and consulting firm specializing in the operational and technology needs of asset managers. “From an investment firm perspective, it’s mostly the two choices of AWS and Azure, with a little bit of Google.”

Wachs and others said that the more expensive Azure offering is becoming more appealing to asset managers.

“Almost everybody, to a certain extent, has gotten themselves into the Azure cloud because of Office 365 and things like Power BI,” he said. “Office 365 is just part of the game, and Amazon is not selling Office. It’s been Microsoft owning the desktop productivity tools for a long time and that isn’t changing — it’s pretty much a Microsoft game with Excel, Word, PowerPoint and so forth.”

Giannaros said the decision to choose Azure came after an extensive search process with a third-party consultant.

“We look at Azure as enabling things beyond our SaaS delivery,” he said. “When we choose a partner like Azure, and leverage the platform offerings, the benefits are really around all the tooling monitoring and the services we can package together to provide value back to our customers.”

AWS tends to have more options for quant funds, according to Michael Pusateri, CEO and Founder of Siepe, a financial data management and IT solution provider for asset managers that partners with both Microsoft and Amazon.

“I think there’re strengths and weaknesses of both — it depends on what’s the best solution for you,” he said.

Pusateri said adoption of the public cloud had been slow in the asset management industry but has picked up significantly over the past two years, in part to avoid costly tech builds and upgrades for in-house cloud services, as well as increased demand from customers working to deliver flexible, transparent and easy-to-use tech solutions. Firms are also looking to stay competitive amid greater fee compression and digital transformations.

“There’s a huge adoption in the emerging managers space because the barrier to entry of starting a fund and having to buy servers is very low,” he said. “You’re not reserving the bandwidth — it’s basically pay as you use — whereas a lot of private cloud providers reserve infrastructure for you, so it’s not as flexible.”

Other vendors using public cloud or sticking to private

Broadridge Financial Solutions uses multiple cloud providers — including Azure for Office 365 and other services — as part of a hybrid model.

The Lake Success, N.Y.-based global technology provider struck a deal with IBM in January to power much of its infrastructure [4] through a hybrid cloud strategy. The collaboration includes the creation of the Broadridge Private Cloud and will see a significant portion of Broadridge’s global infrastructure transition over to IBM.

“The IBM component is an enabler across our hybrid cloud solution and further supports our public cloud strategy to add additional velocity,” Broadridge CIO Mark Schlesinger said.

But when it comes to the public cloud, Schlesinger said Broadridge’s preferred provider is AWS.

“Given its market share and the level of innovation, AWS provides the largest breadth of infrastructure and platform services available globally,” he said, adding that the coronavirus pandemic highlighted the importance of new digital technologies and cloud services. “Whether its data-based technologies, middleware technologies, development building block and even blockchain and AI-type of solutions, from a pure public-cloud standpoint, they probably have the biggest catalog of services.”

Klaus Holse, CEO of technology firm SimCorp — which announced in February [5] it was advancing the cloud delivery of its front- to back-office asset manager platform through a partnership with California-based GlobalLogic — said a detailed and evolving cloud strategy is required for vendors servicing the asset management space. SimCorp, which currently provides a private cloud service, will soon offer existing and new clients both a private and public solution.

“Vendors will need to manage a wider footprint of investment management operations, delivering everything as a service,” Holse said in a recent open letter. “Empowered by the cloud, vendors will need to take over the time-consuming maintenance of the systems, processes, and data owned by the asset manager, while also being more accountable for tangible business outcomes.”

Servicing giant SS&C, however, is sticking to its highly secure private cloud solution, CTO Anthony Caiafa said.

“We run all of our customer applications and infrastructure, along with our own, on this highly scalable cloud,” he said.

Caiafa added that while he thinks Amazon offers an excellent service, once you are ingrained in the Amazon ecosystem, it makes it very difficult to migrate away due to vendor lock-in.

“This lock-in will force you to rely on Amazon as your primary provider for all infrastructure and services,” said Caiafa. “We have internal expertise in running our applications and want full control over our customer’s experience.”

“Some vendors are on Azure, some are on AWS and if you like a product and it comes in Azure but you’re in AWS, you’re going to have to deal with that,” Wachs added.

And making the switch to a public cloud is not always an easy plug-and-play, according to Pusateri, who said that there have been “horror stories” about poor migration to Office 365 by private cloud providers, and poor execution from an IT perspective.

“When you’re doing it for the first couple of times, there are a lot of T’s to cross and I’s to dot to get an implementation done well,” he said.

Security concerns beginning to ease

In the wake of data breaches and growing regulatory focus on technology [6], Pusateri and others said security and compliance is one of the main concerns among asset managers when it comes to public cloud use.

A year ago, information requests sent by the SEC as part of its new cloud service provider-related sweep [7] began asking firms for information ranging from the documentation of their cloud provider due diligence to lists of the data types they store on the cloud.

According to Accenture, the most frequent barriers to realizing cloud benefits among those surveyed were security and compliance risk (65%) and business and organizational complexity (55%).

Clearbridge reports that public cloud platforms are seen by CIOs as less secure compared to on-premise solutions. But security concerns around public clouds are beginning to soften, according to those Fund Intelligence spoke to.

“A big driver is the investment that public cloud providers are making in security because to try to replicate that on your own is quite a heavy lift,” Giannaros said.

Pusateri said he believes the public cloud is more secure than private. “When you go to the public cloud you have a shared security model with the provider,” he said. “Amazon will always be able to hire more security experts and network engineers than any private cloud provider will be able to.”

Other vendors say there is still public cloud reluctance among some clients, meaning that a hybrid approach is still required, at least for now.

“There are still risk and compliance teams that are out there that still have certain concerns around the public cloud, and that’s why having a hybrid cloud strategy is really important — at least for the time being — so we can really support the needs of our clients and regulators of our clients,” Schlesinger said.