Hedge Fund Question of the Week – Winter Edition – No. 5

By the team at Indus Valley Partners

Buy vs. Build. Where does the software debate stand?

Answer: Buy the standard, build the specific.

The principle hasn’t changed, but the technology has. Best-of-breed providers now offer cost effective products across a fund’s investment and operational needs. 

The decision for managers to “buy” is fueled by vendors who now bring years of domain experience and flexibility, lower TCO and noticeable de-risking of software development, deployment and support. In addition, cloud computing and open-source software allow vendors to provide economical solutions for smaller managers. Finally, fee compression and the rising cost of attracting and retaining tech talent are key considerations.

On the “build” side, managers may still opt to develop software where highly specialized and intricate knowledge of the portfolio or strategy is needed. Firms, especially data-intensive, quantitative, or multi-manager platforms, will continue to have in-house tech and software personnel where custom solutions around modeling, risk and allocations make sense to build.