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The Hedge Fund CTO Role

In this article, I intend to describe what a Chief Technology Officer does for an Asset Manager. Its not a comprehensive list, but will give you a feel for what I used to do in my previous jobs. I created this document as part of a presentation to a client and thought it may be useful to publish parts of it.

At a very high level, the CTO’s primary job is to make sure that the company’s technology strategy serves it’s business strategy. The company’s technology should enable the processes the company wants to implement, the company’s technology should enable growth and change, it should never inhibit the business, the company’s technology should automate where possible, and it should create opportunities for the business.

CTO’s therefore are responsible for creating options for the company. New technologies emerge all the time and the CTO should continuously review and evaluate these, their benefits, costs and risks and present these options to management. The CTO needs to look at the big picture and use these options to create, prepare and manage the technology strategy to maximize the use and alignment of technology with the business’s current needs, growth needs and change needs. This strategy may involve new platforms, new software development, upgrades or business process changes.

What’s becoming more common these days is the CTO’s new secondary role, to present the public face of technology for the company to investors, counterparties, vendors and regulatory groups. Ten years ago, CTO’s sat in corner offices and were never seen. Nowadays, CTO’s are called out during due diligence and investor reviews to work with the CFO, CCO, COO and Principals to answer questions and present on the company’s use of and controls in technology. CTO’s are involved with the CFO and COO in counterparty credit reviews to show how the company’s systems align. CTO’s are involved with the CFO in the regular audits to ensure that the systems comply and that the data needed by auditors is available. CTO’s are involved with the CCO in regulatory reviews to deliver data for reporting. And more and more, CTO’s are sent out to help market the firm.

CTO’s leverage technology to adapt, modify, replace, optimize and automate the workflows of the business. They actively seek out bottlenecks and stress points and apply technology to relieve them. In short, they are the chief firefighters and problem solvers in areas where technology can apply. They re-examine all business and data flows to ensure that they meet the current and future changing needs of the business. They ensure, using technology, that all processes, workflows and data are traceable, auditable, correct, subject to the appropriate controls, are secure, and will continue to work in a disaster situation to ensure business continuity. They track and manage errors and failure rates to identify new issues, new controls and better processes. CTO’s may strategize at the high level, but also apply themselves to the details and minutiae to solve problems and ensure all is well.

CTO’s also focus and manage the technical team, and grow these people into technical leaders. A technical leader is a technical person who understands the business so well that they can provide new ideas and opportunities as part of their day to day activities. CTO’s scope, plan, initiate (or reject) and manage all technology projects, and set the standards and tools to be used. CTO’s also have the problem of deciding which projects to execute given limited resources, deciding, with management buy-in, which projects to undertake and when. Some CTO’s even get their hands dirty and program.

CTO’s choose the company’s technologies, platforms and architecture. Since the CTO is closely involved in business processes design, and is aware of new and changing technologies, CTO’s recommend whether to buy software or platforms to improve these business processes, or build technology to do it, or leverage existing technology to do it. On a build decision, the CTO often designs the architecture and manages the project; on a buy decision, the CTO manages the vendor relationship and implementation process; and tests and validates the new technology before releasing it to the business.

More and more, CTO’s are being tasked with ensuring data consistency, accuracy, quality, correctness and timeliness. As the business grows and the number of systems grows, the number of integrations and interactions between systems, data sources and vendors, counterparties and third parties grows exponentially. The issue that emerges is that there is commonly no “one version of the truth” (See Hiltmonism – One version of the truth) for the data in an Asset Manager. This “one version of the truth” however is required for investor and regulatory reporting, as well as for quality, trusted internal reporting and risk management. CTO’s decide which integrations are needed, and which are not, which systems and data sets are ‘gold’ and which need to be integrated from the ‘gold’ source. They choose when to consolidate systems, when to reconcile systems and when to just drive one system from another.

CTO’s also

  • Plan and set the software development methodology used
  • Ensure data across all systems is comprehensive, is correct, can be trusted and grows to meet reporting needs
  • Track and manage all vendor relationships from systems vendors, network vendors, and phone vendors, scheduling and tracking their contracts, budgets and performance.
  • Track and manage all technology assets and licenses, plan replacements and upgrades and manage maintenance.
  • Works with the CCO to ensure network and system security and controls are active and effective.
  • Work with the management team to create, present and, where necessary, enforce technology policies relating to physical plant access, company assets, company data, internet access, remote access, mobile computing and “Bring Your Own Device”.
  • And a whole lot more.

The role of Chief Technology Officer in a Hedge Fund is a broad mix of business skills such as vision, strategy, leadership and coaching, mixed with a varied mix of technology skills, such as evaluation, architecture, development and testing, applied to the ongoing strategy and processes of the business. A good CTO provides technological opportunities to a Hedge Fund to improve differentiation, competitive edge, accuracy, growth and flexibility in a changing market and regulatory environment.

Note: Noverse LLC does provide outsourced CTO services to smaller and fast growing Hedge Funds that cannot afford a full time CTO or require quick access to CTO skills.

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