Institutional Investor's Alpha Magazine - February 2008 - (Page 54)

III Associates 17 technology specialists, up from 12 when he took the position — more than 15 percent of its 110-person workforce and a testament to the importance the ﬁrm places on technology. In recent years, as III Associates has moved into new areas of trading in an effort to ﬁ nd additional ways to create alpha, the ﬁ rm found that its 15-year-old legacy operating system was having difﬁculty handling the increasing amount of information it needed to process. When Algreen became CTO he had to make a choice: buy or build a new system. He chose the latter, based partly on the firm’s culture, which values technical expertise and leans toward systems developed in-house that can be customized. “We don’t like a black box,” says Algreen. “One of our primary core competencies is our quantitative development expertise. We have a very tech-savvy trading desk and quantitative analysis group.” Roughly a year into the project, he says, the ﬁrm is already conducting its credit trading on the new system, with the rest of its strategies on track to be switched over by the end of next year. Algreen followed an unusual path into ﬁnance. After graduating from MIT in 1997, he took a job as a technical consultant with a private telecommunications ﬁrm, Kenan Systems Corp., now Comverse, a division of AlcatelLucent, helping implement software at client sites around the world. His next stop: a job as an aerospace engineer working on software development in Tucson, Arizona, for aerospace systems supplier Raytheon Co. After a stint as a technical engineer and consultant in the Boston ofﬁce of Waltham, Massachusetts–based software maker Idiom Technologies, he returned to Tucson for his ﬁrst CTO job, at start-up Octane Games, a developer of computer games for hand-held devices. During his time there, he learned about an opening for an entry-level analyst on the ﬁ xed-income desk at III Associates, where some of his college buddies had landed. Switching gears, he jumped to III Associates in 2003, obtaining his Series 7 license and learning about the principles and guidelines the ﬁrm has developed in its 25 years of operation. Over the next few years, he took on numerous other roles at the ﬁ rm — becoming a trader, working with clients to execute trades, making trading recommendations and ultimately moving to the Treasury desk. “I had always been interested in ﬁnance,” says Algreen. “So it made a lot of sense to make another drastic change.” But then the CTO job opened up, and Algreen decided to move back to his original area of expertise. His trading experience provided him with a unique perspective that is helping to shape the way III Associates will use technology for years to come. In January, Algreen spoke with Alpha Contributing Writer Irwin Speizer to discuss that technology and the challenges of managing the computational needs of a large hedge fund. Alpha: What are the biggest challenges that technology ofﬁcers at hedge funds confront today? Algreen: It depends on the type of hedge fund. As a “The challenge everyone faces is to create a consistent, uniﬁed view of portfolio risk and proﬁt and loss.” ﬁ xed-income, relative-value hedge fund, our challenges center around our analytics and the models we use to develop our strategies. The challenge everyone faces — especially funds that have gone multistrategy — is to create a consistent, uniﬁed view of portfolio risk and proﬁt and loss. So risk management is the central focus of everything? Generally, yeah. The risk in the trades that risk managers are looking at should be the same as what traders and the operations folks are looking at. A lot of funds use a prime broker, but we choose not to. We do all our own clearing and settlement in-house. So providing a consistent view is critical. What is the biggest decision you’ve had to make as CTO? We were faced with a rapidly expanding set of asset classes that we were trading. We were at a crossroads where our legacy system — our in-house proprietary system — was starting to fall behind. So we had to decide whether to build upon that platform, buy a big, third-party system or develop our own next-generation platform. We build a lot of our analytics and models ourselves, using combinations of third-party components and custom stuff. But at the end of the day, we like to maintain control internally, or at least have the ability to understand what’s going on. What kind of resources did you need to undertake this project? We didn’t have enough people or the right focus, so I had to convince our management committee to make an investment. Fortunately, I had circumstantial evidence. The operations guys were saying, “Look, we’ve got to do something different,” and the traders were saying, “We need to make this better.” We weren’t inadequate, but we needed things to be better to avoid unnecessary risk or the need to hire a lot of people for a job one person could do with technology. Take credit trades. Manually conﬁrming hundreds of trades a day would take two or three people, but with technology one person can do it in half a day. What role does technology play in III Associates’ strategies? Technology is the only way to manage the volume of information in today’s market. Using technology we can do things much more efﬁciently — things like automation of data feeds and conﬁrmation processes. 54 • INSTITUTIONAL INVESTOR’S ALPHA • FEBRUARY 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2008

Institutional Investor's Alpha Magazine - February 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Alternative Perspective The Good Guys: A Simple Plan Cover Story: Energy and Commodities: Fueling Opportunity Regulation: Energy Trading: The Brawl on the Hill Interview: Master of Values Regulation: Hedge Fund Registration: Way Out West Research Center: Top Hedge Fund Analysts Alpha Bytes: Rocket Man Unhedged: Commentary: Structured for Success

Institutional Investor's Alpha Magazine - February 2008

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