Hedge Funds and Microsoft Excel: Examining the Risks and Efficiency Drawbacks

September 8th, 2009
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Contributed by: Natalie Kaminski, FinCode Solutions
Microsoft Excel is by far the most common application used in a financial environment. There are funds that run their entire operation using Excel spreadsheets; from trade blotters to complex financial modeling and real-time P&L reporting, Excel can be programmed to support the front, the middle, and the back office. Further, many finance professionals are experts in Excel programming and can manipulate their spreadsheets without any support from IT personnel. This makes Excel a great low-cost option when it comes to data storage, processing and data analytics.

Unfortunately, there are a number of issues that a fund must consider when making the decision to rely completely on Excel. For example, Excel cannot be modified simultaneously by more than one user. This may be fine for a fund with two employees, but may pose a significant efficiency issue for a larger operation.

As a bigger concern, Excel macros, which are heavily used by hedge funds, are prone to viruses. Macro viruses use Excel’s own programming language to distribute themselves. These viruses have the potential to corrupt data within the infected document as well as within documents that are linked to it. Some viruses are just annoying, while others can be very destructive. Just opening an infected spreadsheet will infect the user’s system and may even spread to other computers within the user’s network.

Earlier this year, Microsoft released a public notice about a known Excel vulnerability that could allow remote code execution. On another occasion, Microsoft introduced a calculation bug while trying to patch yet another security issue.

So, while Excel is a low-cost, powerful and convenient tool, it has some significant flaws that must be examined carefully when choosing technology platform to run your fund.

Natalie Kaminski is the Founder and CEO of FinCode Solutions, a boutique software development and consulting firm that focuses on the alternative investment industry. For more information on Ms. Kaminski and FinCode Solutions, please click here.
Related Article Tags: Multi-Strategy, Long Short, Equity, Debt and Global Macro Hedge Fund News; Hedge Fund Resources and Featured Partner News


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