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Starting a Hedge Fund: What kind of Internet/Voice connectivity will I need?

Thu, 24 Sep 2015 09:56:27 GMT

Among the many technology decisions your firm will face during the launch phase is selecting the appropriate telecommunications needs to power daily operations. High-speed Internet and voice connectivity are necessary to access market data feeds, communicate with investors and facilitate trade orders and other investment decisions. To help you make an informed decision about your voice and Internet needs, we’ve provided a few suggestions below.

Short on time? Click here to read our complete manager’s guide to establishing a hedge fund.

Internet
The Internet, of course, is an essential vehicle for collecting and distributing market data, as well as communicating with your clients, investors and partners via email. You’ll likely find four Internet access choices, depending on availability in your area. There are benefits and drawbacks to each, as described below.

Internet Access Option

Pros

Cons

Cable modem

High speed, relatively inexpensive

Low reliability

DSL

High speed, relatively inexpensive

Low reliability

T-1 line

High reliability, efficient speeds

More expensive than other two options

MPLS

Cost-effective; flexible & scalable; offers redundancy and DR capabilities

Whichever Internet access method you select, seek out a plan that bundles proactive monitoring and security features to ensure the highest possible availability. You could also consider using multiple providers and a router in order to establish a safety net in the event one of your sources fails.

Voice
Traditionally, firms purchased a switch, known as a PBX, for phone and voicemail services. Your PBX will be installed in your data center and provides several options for routing calls and storing voicemails, as well as services such as caller ID, auto-attendant and integration with ring-down lines to various brokers. As you consider your options, it will be useful to know the approximate number of users and required functionality of the system. Keep in mind your requirements for redundancy, voicemail-to-email setup, branch offices, and call accounting and call recording systems.

In today’s cloud-powered environment, Voice over Internet Protocol (VoIP) systems have become a powerful option for hedge funds and investment firms to employ. VoIP services are relatively inexpensive and can therefore be attractive to firms initially short on capital. Added VoIP benefits include high levels of redundancy, seamless connectivity across multiple office locations and critical functionality for financial services firms. One reminder: make sure your VoIP provider has defined quality of service levels.

Many IT service providers have partnerships with telecommunications companies and can assist you in selecting the appropriate options for your business. Note that your costs will depend not only on the functions you need, but also how many users your fund will have. A fund with fewer than 40 users might pay anywhere from $20,000 to $40,000 for basic telecommunications services. However, it’s likely you will want additional services including advanced mobility, integration with trading systems and modular messaging. When you factor in these features, your costs can rise to a range between $30,000 and $80,000.

Market Data
Finally, you’ll need to select a market data vendor. Again, your selection criteria should include cost, speed, reliability and service. Fees vary and are determined by your offering mix, user base, remote access method and real-time pricing requirements. The leading providers of market data include Bloomberg and Thomson Reuters.

Launching a Hedge Fund: Emerging Manager Article Series

Editors’ Note: The information in this article has been updated and was originally published in May 2010.

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