Last week, we revealed the results of our 2012 Hedge Fund Operations & Technology Benchmark Study, which surveyed over 300 buy-side firms about their front, middle and back office technology and vendor preferences. This year’s findings underscore the need for investment firms to employ robust systems to support trading operations and meeting increasing regulatory and investor demands.
Below is a summary, but you can download the full report here.
Within the financial services industry, Eze Castle surveyed 320 firms including hedge funds (61%), investment managers or investment banks (12%), private equity firms (7%), fund of hedge funds (4%), broker/dealers (2%), and venture capital firms (1%). Additional firms included in an ‘Other’ category include family office, legal, real estate, endowment, quant, biotech and insurance brokerage.
Firms surveyed fell into three asset classes: 30 percent reported their AUM as $100 million and under; 32 percent fell between $101 and $500 million; and 38 percent reported over $500 million in assets under management.
The most popular investment strategy among firms is Equity Long/Short (37%); multi-strategy approaches are also common and employed by 23 percent of firms. The top five prime brokers employed by firms are Goldman Sachs, Morgan Stanley, JP Morgan, Credit Suisse and UBS.
- OMS: Firms use order and execution management systems to support trading, operations, compliance and portfolio management; therefore, they require a robust and efficient solution to meet their growing needs. Our survey found that the majority of firms rely on ConvergEx Group’s Eze OMS solution (32%) or Bloomberg’s AIM (23%). Other market OMS systems include Advent’s Moxy, RediPlus, and Charles River.
- Market Data: Bloomberg is, by far, the leading provider of market data services in the financial industry, as evidenced by its use by 90 percent of survey respondents. Thomson Reuters is the second most commonly used solution; however, 80 percent of firms using Thomson Reuters are also using Bloomberg.
Market Analytics: This year’s survey showed respondents’ inclination for bundled solutions, which makes it understandable that Bloomberg is also the leader in market analytics (73%). Other market analytic solutions in the marketplace include Thomson Reuters, Capital IQ, and Factset.
Research & Document Management: Most firms are not currently using research management systems (54%) to manage the influx of data and information flowing into their firms. For those who are, popular systems include Advent’s Tamale (22%), Code Red (14%) and Microsoft SharePoint (12%).
- Portfolio Accounting: With the ability to automate trade capture, allocation and lifecycle management, a portfolio accounting platform is essential to any investment firm. Advent holds the market share, according to our survey, with their APX (20%) and Geneva (17%) products used by many of our respondents.
- Risk Management: As hedge fund investors demand greater transparency, firms are implementing strategic risk management systems to mitigate threats. Adoption is slow – 60 percent of firms are not using risk management systems currently – but market solutions in use include Advent, SunGard, RiskMetrics and Calypso. We expect many firms are outsourcing risk management functions to third-party administrators.
Outsourced Administration: Speaking of administrators, the most common admins according to our survey include Citco, Goldman Sachs, SS&C GlobeOp and State Street. State Street recently purchases Goldman’s administration practice, and we expect them to play a larger role next year.
CRM Solution: Of firms currently using customer relationship management tools, most are using Petrac (17%), Salesforce (17%), Backstop (13%) or Netage (13%). CRM tools may gain traction in the near future as firms look to do more advertising as a result of the JOBS Act.
Message Archiving: Email and IM communications are required to be archived under Dodd-Frank. Global Relay and Eze Archive are the most popular solutions for investment managers, with 50 percent of respondents using one or the other. Less frequently used vendors include Smarsh, FrontBridge, Postini and Rackspace.
Mobile Technology: While many firms are still using BlackBerry to support their operations, the adoption of the BYOD trend has shifted companies toward Apple devices. Last year, only 10 percent of firms were using iPhones and iPads; in 2012, approximately 30 percent of firms are using Apple-powered devices for business.
We expect to see continued adoption of crucial applications, including OMS and PMS systems, particularly as these applications can easily be supported in the cloud. Beyond cloud computing, there is sure to be an increased focus on hedge fund regulation in the future, and this will affect the systems and vendors firms choose. Investors, also, are becoming more technologically savvy and therefore require that investment firms do their due diligence and implement robust and secure infrastructures to support operations and mitigate risk. These trends will continue to play important roles that shape the technology and operational choices investment firms make. We hope our Benchmark Study will serve as a guide and assist firms in making these critical decisions.
Eze Castle Integration is well-versed in the understandings of the alternative investment market and provides consultation to hedge funds looking for advice on various hardware and software platforms. For more information on how we can help your firm make critical operations and technology decisions, please contact us.
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