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Hedge Fund Operations & Technology Benchmark Study

By Kaleigh Brousseau,
Thursday, April 7th, 2011

If you missed it yesterday, we presented the results of our 2011 Hedge Fund Operations & Technology Benchmark Study. The purpose of this study was to examine the key front, middle and back office systems and technologies being used by alternative investment managers today.

As a means to gather this information, Eze Castle Integration surveyed over 200 hedge funds and alternative investment firms in 2010 regarding their hardware and software, applications, communications devices, and more. Below is a short summary of our findings*:

Respondent Profile

Of 223 total firms who responded, 56% reported their assets under management to be less than $250mm. 17% of our respondents had an AUM of between $250-750mm at the time of the survey, and 27% had more than $750mm in assets.

The majority of firms indicated that they had just 1 office location, which was in the United States. Only about ¼ of respondents had an international office and/or multiple office locations.

These demographics indicate that possibly there is a large number of small firms in the industry now, which is supported by the fact that more than half of firms surveyed reported that they had less than 10 employees.number of office locations

When asked about their primary investment strategies, the majority of firms responded that they traded Long/Short Equity. However, aside from that particular strategy, there were a variety of answers provided. Some of the most popular strategies included fixed income, distressed securities, and emerging markets. Thirty-five percent of firms indicated they use a multi-strategy approach; of those firms, more than half said they trade Long/Short Equity as part of their strategy set.

We also asked respondents about their primary and secondary prime brokers. There was little to no variance between primary and secondary primes, with Goldman Sachs, Morgan Stanley, JP Morgan and Credit Suisse maintaining a stronghold over the majority of firms.

Front Office

When it comes to front office operations and technologies, we asked respondents to shed light on the types of tools and vendors they are using on a day-to-day basis; specifically, we asked about order and execution management systems, market data and market analytics tools, and research management software.

Below is a snapshot of our findings:

  • OMS/EMS: The market leader is clearly Eze OMS, offered by Eze Castle Software and the ConvergEx Group. The second and third most popular order management systems were Bloomberg’s OMS and Advent’s Moxy, respectively.

  • Market Data: The vast majority of firms use Bloomberg for their market data, however Thomson Reuters continues to be a player in the market, particularly for firms looking for more flexibility and cost-savings.

  • Market Analytics: Forty-three percent of firms reported that they use multiple vendors for market analytics. The most popular combinations were Bloomberg & Capital IQ and Bloomberg & Thomson Reuters.

  • Research & Document Management: Code Red and Tamale appear to be emerging as leaders in the marketplace, however the most popular research management software reported was a custom or in-house solution.

    mobile technology solutions

Middle and Back Office

Middle and back office operations are being more closely scrutinized in today’s economy, as investors are placing greater important on risk management and transparency. Additionally, the Dodd-Frank Act is rearing its head and may be contributing to certain back office technology solutions, including email and instant message archiving.

  • Portfolio Accounting: According to our survey results, Advent is the most popular vendor for portfolio accounting software. However, there still remains great diversity in this marketplace, and respondents gave a variety of answers, including SS&C, Wall Street Offices, and Fiserve.

  • Risk Management: Advent is also a player in the risk management field, along with RiskMetrics, Calypso, and others. But again, diversity is evident in the variety of responses.

  • Investor Relationship Management: Interestingly enough, 37% of respondents said they currently have no CRM or IRM in place. For those that do, Backstop, Netage Solutions, and Salesforce were the most popular vendors.

  • Email Archiving: Sixty-one percent of firms are using Global Relay to archive their electronic messages. Other vendors include Symantec and Iron Mountain.

  • Instant Messaging: AOL Instant Messenger garnered 76% of respondents, however many said they used this service in addition to others, such as Bloomberg Messaging or Yahoo Messenger.

  • Mobile Devices: BlackBerry continues to remain the top player in the enterprise world, as evidenced by 95% of our respondents. However, we do expect to see more and more firms using iPhones, iPads and other tablets in the future.

What Do These Numbers Mean?

Overall, we’re seeing hedge funds and alternative investment firms placing importance on their front, middle and back office operations and technologies, particularly as new regulations are put into place and as investors continue to demand higher levels of transparency. Ultimately, our 2011 Benchmark Study was created to offer hedge funds a look into the industry and to provide some insight into the critical decisions being made my fund managers today.

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 operational and technological decisions, please contact us.

dowload the hedge fund benchmark study report

Categorized under: Trends We're Seeing  Communications  Hedge Fund Due Diligence  Hedge Fund Operations  Launching A Hedge Fund  Software 



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