Hedge funds' disaster recovery systems pass Hurricane Sandy test, experts say

Operational RiskOutsourcingPrime BrokerageTechnology
06 Nov, 2012

Disaster recovery systems and business continuity plans at hedge funds fared well during Hurricane Sandy’s onslaught, experts have said.

“Hedge funds’ operations were not unduly impacted by the storm. Through experience with prior disasters like the 2003 New York black-out and the 2007 steam explosion, many  managers understand the importance of having fully functioning business continuity plans and disaster recovery systems in place,” said Jeremy Siegel, global head of prime consulting at Credit Suisse in New York.

Peter Hess, CEO at Advent Software, agreed hedge funds had coped. “Having spoken to clients, many managers’ business continuity plans and disaster recovery systems worked effectively,” he said.

Investor pressure on disaster recovery systems has grown since the 2003 black-out, as well as 2008. Furthermore, Dodd-Frank stipulates financial institutions must have emergency procedures, back-up facilities and disaster recovery plans in place. Dodd-Frank also demands these plans be periodically tested to ensure continuation of order processing and trade matching, price reporting, market surveillance and accurate audit trails.

“Investors and regulators have been pushing for such systems for years and this, coupled with the institutionalisation of hedge funds, undoubtedly contributed to the fact that many hedge funds were well prepared. Post the storm, we offered hedge funds office space on a temporary basis if they were impacted. No funds took us up on the offer, which is indicative of their level of preparedness” added Siegel.

The majority of hedge funds are based above 40th street, which did not bear the brunt of Sandy’s wrath although a dangling crane on 57th street forced some managers to relocate, the Financial Times reported. It appears to be service providers based in downtown New York, which have been hit the hardest. Both NASDAQ and the NYSE shut for an unprecedented two days, while Goldman Sachs and Citi told employees to work from home.  Nonetheless, one expert said he hadn’t heard of any prime brokers failing to report back to clients or settle trades.

However, there were some minor issues for hedge funds to contend with.  “Some hedge fund employees working from home may not have had power while others using Citrix (a disaster recovery system), did not register for enough licenses for their employees. Generally, however, technology at hedge funds has improved dramatically since 2003 .Less funds are dependent on in-house data centres and more are reliant on co-location facilities with redundant power and facilities,” commented Siegel.

Advent Softwarebusiness continuity plansCredit Suissedisaster recovery systemsDodd-FrankNew York