Forefront Communications

Traders Magazine: The Next Evolution and Debate in the Cloud

The cloud.

It’s the buzzword that keeps on buzzing. Years after the concept became a hot topic in mainstream circles among all, it is still the subject of many debates within the financial services industry, and everyone, from the vendors hawking transformative solutions to the leeriest buy-side firms, seems to have an opinion.

That’s not to say that nothing has changed, however. A Refinitiv report last fall predicted that the financial services industry will spend 48% of its collective IT budget on cloud services in 2020, up from 41% in 2019. Around the same time, a survey by IHS Markit and WBR revealed that 80% of buy-side respondents will use the cloud for data management by the end of 2020. Those figures are a far cry from the early days of the cloud, in which tepid adoption rates and cautious technologists dominated the conversation.

“Historically, one of the common misconceptions from the buy side with respect to technology strategy is that the perceived risks of the cloud can outweigh the benefits,” said Hoony Youn, CTO at MackeyRMS, a provider of SaaS-delivered research management software for investment managers. “I think that has changed dramatically over the past few years. As the buy side has embraced the cloud, many of the older perceptions, that the cloud is less reliable and less secure, have proven to be quite the opposite.”

This greater understanding has led to a fruitful period for vendors of solutions that leverage the cloud, to the extent that the cloud is now a selling point – it connotes sleekness, modernity and a rejection of legacy technology. But the industry’s education is not complete, and many of the continued misconceptions boil down to a single point: not all cloud systems are created equal.

And just like those old debates, the topic elicits strong feelings from those in the space. Sean Sullivan, CRO at LiquidityBook, a provider of SaaS-based, multitenant order management solutions, believes that due to their reliance on professional services, single-tenant solutions pose a business risk for vendor and client alike.

“While they are wrapped in the cloud and all the rhetoric that comes with that, single-tenant solutions share a lot of similarities with legacy systems,” said Sullivan. “They ignore the fundamental benefits of the cloud. When every client requires bespoke upgrades, localized customizations and patch releases, processes can become backed up and the product inevitably suffers, and this is especially true during times of disruption. Multitenant systems are far nimbler. Every single new functionality we build is released to the same instance, so our clients don’t have to worry about racking up professional services fees and our ability to service them is never compromised.”

LiquidityBook has ridden its model to significant success in recent years – in 2019, the firm posted a 33% year-over-year improvement in terms of revenues. 2020 is shaping up to be even more successful, says Sullivan, especially with many legacy and single-tenant providers facing hurdles related to the COVID-19 pandemic.

“Our experience with multitenant trading technology has been very positive,” said Ben Searle, CIO at Levin Easterly Partners, a private asset management firm specializing in value investing. “Deploying LiquidityBook’s LBX Buy Side required heavy collaboration and some extensive back-end work at the outset, but very little since then. We now have access to a high-performance product and benefit from regular updates while avoiding legacy processes and servicing fees.”

This process is typical of multitenant solutions – while they often require a lengthy bespoke integration up front, every subsequent upgrade occurs automatically, saving time and resources in the long run. Meanwhile, with every new client the multitenant provider signs, the product is built out and improved, and the existing client base reaps the rewards. It’s all part of what Sullivan calls an “ecosystem of good ideas.”

“With a multitenant solution, clients should expect better ROI via shared resources, databases and applications,” said Tom Pfister, Vice President of Global Product Strategy at Confluence Technologies, which provides a suite of reporting solutions to large asset managers. “Hard costs are shared more efficiently across many tenants. In the same way, clients are effectively sharing their brainpower, making their innovations available to other tenants and driving the entire industry forward.”

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