Technology Firms Overview

   As a result of the inflow of pension fund and other institutional money into hedge funds, managers provide greater disclosure and more comprehensive reporting about how their investments are faring. Investor relations software makes the task more manageable.

   Backstop Solutions Group wins the Alpha Award for top investor relations management system by a wide margin over SS&C Technologies and PerTrac Financial Solutions. Jeremie Bacon launched Backstop in 2003 with investments from four hedge fund and fund-of-funds managers. The company designed its investment partnership management software as a single, integrated platform that enables customers to reduce the number of technology systems they must support.

   Chicago-based Backstop targets funds of hedge funds by allowing them to track and manage their relationships with investors, conduct portfolio management and fund-level accounting, and consolidate research on hedge fund managers. Hedge funds use a pared-down version of the platform for investor relations, including the creation of marketing materials and customized statistical reports for clients.

   Second-place SS&C Technologies, a 20-year-old Windsor, Connecticut– based financial services company, offers customers a range of investor relations and document management services. PerTrac Financial Solutions, which acquired investor relations specialist Whittaker Garnier earlier this year, finishes third. The firm, with offices in Memphis, Tennessee, and Reno, Nevada, edges out No. 4 London-based Sage Software, which provides customer relationship management software and related services across many industries.

   Technology providers ministering to hedge funds are finding they must accommodate a demanding audience. This month, for the first time, Goldman, Sachs & Co. is giving users of its Rediplus execution platform access to algorithmic trading programs from a handful of other brokerage firms.

   “It’s what customers want,” explains Greg Tusar, head of electronic trading at Goldman Sachs Execution & Clearing, the firm’s New York–based broker-dealer subsidiary, which takes top honors in trade order management.

   The Rediplus global, cross-asset-class execution platform comes with lots of bells and whistles: smart order routing, program trading, algorithmic trading that lets customers manage their order flows efficiently and a suite of transaction cost analysis tools. Last year customers gained access to Goldman’s new Sigma X, a crossing system that combines liquidity from Rediplus customers, external crossing systems, a handful of third-party market-makers and Goldman itself.

   In our survey top-ranked Goldman handily outpaces competing providers of trade order management systems and execution management platforms. The contest for second place is extremely close, with Boston-based Eze Castle Software edging out No. 3 Banc of America Securities. This summer, Eze Castle and BNY Brokerage formed a new, independent entity called BNY ConvergEx Group that combines the former’s order management system, which has more than 200 hedge fund clients, with the latter’s direct market access platform and research-related services.

   In risk management, hedge fund managers give RiskMetrics and Imagine Software the equivalent of a standing ovation. RiskMetrics gets top honors, with Imagine in second place. New York–based Imagine has expanded its risk management and analytics platform in recent years and now has more than 100 investment management clients, mostly hedge funds. The versatile GlobeOp Financial Services places third in risk management, after a sizable gap. Morgan Stanley places fourth, holding its own against the field of dedicated risk management firms.

   Risk management gained in importance during the past decade as hedge funds realized the importance of being better able to deal with their market and credit risk. RiskMetrics earns kudos by covering a comprehensive range of asset classes and instruments and by providing a full, sophisticated battery of risk management services, from its value-at-risk methodology and Monte Carlo analysis to real-time stress testing and scenario analysis. Although a trader may, for example, understand the risk associated with a particular trade executed in New York or Singapore, RiskMetrics enables that trader to compute the risk of the transaction in the context of the fund’s hundreds or thousands of other positions. RiskMetrics customers can reprice complicated securities in real time, benefiting from the computational strength of the firm’s hundreds of servers, which perform millions of calculations simultaneously.

   As the hedge fund industry grows, managers are likely to continue the push to expand and integrate technology systems and software. And big hedge fund investors — with the wallets to back up their demands — will continue to insist on their managers’ using technology that is robust, scalable and as good as it can possibly be.

 — Nina Mehta