Institutional Investor's Alpha Magazine - November 2007 - (Page 50)

Alpha Awards: Top Technology Providers Management. And even though several companies offer products in more than one category, no service provider tops more than one category — a further indication that brand loyalty does not mean much to hedge funds these days. Based on this year’s winners, a fund manager looking to create the ultimate software system would have to use ﬁve different providers — two of them brokerages, two independent vendors and one a subsidiary of a bulge-bracket bank. Although that might result in best-of-breed solutions in each category, the challenge of running so many different systems is daunting. “If you go out and buy ﬁve or six systems, you might get solutions that do everything great, but trying to get them all to work together can be a nightmare,” says Todd Gottula, vice president and co-head of global accounts for San Francisco–based Advent Software (No. 3 in Order Management and No. 4 in Portfolio Accounting). Advent is one of several firms trying to push into neighboring realms by adding solutions to create a suite of offerings. Eze Castle Software is another, adding execution management capability to its order management solution. The one-size-ﬁts-all suite has thus far proved an elusive goal. Risk management is a far different animal from execution management. Even somewhat similar solutions like portfolio accounting and investor relations management contain enough distinct functions that each category ﬁelds a sizable number of independent vendors. As part of our survey, hedge funds rated service providers in three areas: Software Functionality, Support & Client Service and Technology & Architecture. A firm can win an award in any of the overall categories with runaway ratings in one service area and merely good marks in the other two, but top-ranked ﬁrms tend to perform well in all three areas. This result suggests that hedge fund managers want technology that works and is adaptable to speciﬁc needs, and they want it from ﬁrms that provide expert, real-time service. High-quality support and service may not be enough to win a new client, but poor quality can certainly drive away an existing one. Indeed, Support & Client Service drew the most comments from voters, who either vented about service problems or crowed about superior support. In fact, the closest thing to a split decision in this year’s Alpha Awards™ for technology service providers comes in the newly introduced Execution Management category — populated by both brokerage-based and independent vendors. Top-ranked FutureTrade of Lake Forest, California, just squeaks past second-place ﬁnisher Banc of America Securities — No. 3 in Trade Order Management last year — whose InstaQuote system is also popular among hedge funds. Though FutureTrade ranks behind BofA in Support & Client Service and Technology & Architecture, the ﬁrm’s top standing in Software Functionality, where BofA ranks third, helps it clinch the lead. “We get a lot of support for our capabilities,” says Murray Finebaum, FutureTrade’s president and CEO. He touts the system’s ability to trade a wide range of asset classes in venues around the world while smoothly integrating with order management systems and other software. “What we offer is a really well-integrated operation,” says Finebaum. Clients can “trade what they want to trade in a very userfriendly interface.” Rounding out the top ﬁve overall winners in Execution Management are Neovest, Bloomberg and Goldman, Sachs & Co. Last year, Goldman topped our Trade Order Management category, which included both Execution Management and Order Management Systems, but the ﬁrm drops a few notches when its RediPlus software is compared on a more like basis with other Execution Management systems. One of the undercurrents in the Execution Management ﬁeld involves product ownership. Although brokerage-based systems such as InstaQuote or RediPlus play up their ties to the deep technology bench of major banks, companies such as FutureTrade try to parlay their independence from big prime brokerages into an advantage. FutureTrade is well aware that hedge funds closely guard their trading strategies, and the ﬁrm is not shy about playing up the potential for information leakage to other service providers or hedge funds when key trading software is owned by a bank with thousands of trading clients. That unease continues even though brokerage-based systems like InstaQuote allow trades to be executed through competing brokers. “Hedge funds don’t want to be in a position where they are trading ideas and those ideas are available to competitors in a real-time basis,” says Finebaum, adding that it is a fear traders have frequently expressed. Whether the perception has any basis in fact — prime brokerages have erected extensive Chinese walls to isolate sensitive functions like execution management from other bank operations — the possibility that trading secrets could leak has so far helped independent ﬁrms hold their own against brokerage-based systems. InstaQuote began as the product of Direct Access Financial Corp., but in 2004 it was purchased by BofA — which has effectively developed, marketed and supported the system since. Of the remaining top ﬁve ﬁrms, Neovest and Bloomberg are independents. Goldman Sachs acquired RediPlus when it bought broker Spear, Leeds & Kellogg in 2000. EXECUTION MANAGEMENT H edge fund traders are constantly seeking an edge on their competitors, turning to everything from quantitative algorithms that help identify investment opportunities to execution algorithms that break big trades into multiple, virtually undetectible orders. And, of course, at the heart of all their activities is the need for speedy order completion. No wonder execution management systems, a family of software designed for fast and nimble electronic trading, have been rising in popularity in recent years. 50 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2007

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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