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Feb 24 2011 | 10:49am ET
Gerry Gualtieri, CEO of Tradar, technology provider to the asset management community, says in the post-Madoff world, many hedge fund managers are not waiting for regulations to be imposed from outside:
“The combination of Dodd-Frank and the AIFM, the EU Directive on Alternative Investment Fund Managers, is driving hedge funds to believe regulation is only a matter of time…There is already an element of self-regulation, in that funds are setting the infrastructure and systems in place, monitoring and providing metrics and controlling these measures in advance of being obligated to do so by regulation,” he told FINalternatives.
Another factor driving a focus on compliance is the growing popularity of regulated funds, like UCITs funds. Gualtieri estimates that over $160 billion has gone into such vehicles: “We are seeing this trend in Europe with a number of our clients launching UCITs funds. Our compliance capability has become increasingly important to these managers, because they have to demonstrate adherence to very specific rules.”
Tradar added compliance capability to its flagship portfolio management software Insight in 2009—delivering it in 2010. Gualtieri says it proved a “good investment” on their part:
“It is something our clients are taking on board and deploying and is an increasingly important part of all new implementations.”
Now, he says, they see another market concern that could be of equal, if not, greater importance: risk. In response to heightened market focus on risk management, Tradar announced at the start of 2011 it would build additional risk functionality into its Insight product.
Tradar has been a provider of technology to the buy-side since 1997. Historically, says U.S. General Manager Sachin Kachhla, its focus has been supplying the hedge fund community with portfolio management and accounting tools. Asset managers, he says, use the Tradar system primarily to keep shadow books and records which they use to reconcile data from their prime brokers against data from their fund administrators. “It’s a way of having more flexible, independent reporting in-house,” says Kachhla.
Over the past two years, he says, Tradar has focused on front-office operations, developing real-time capabilities: “We can connect to data feeds and pull in real-time data that you can view alongside your positions…It’s verging on the area of decision support.”
“We’ve developed some order-management capabilities,” he says, giving clients the ability to “stage orders into execution systems, so not only can users see data in real time, they can act on it too.”
Tradar’s clients range in size from start-ups (with AUM of about $50 million) to established funds with AUM of $5 billion to $10 billion. User installations can range in size from 1 or 2 seats to 40 or 50. Moreover, clients—Tradar has 240, worldwide—can be “as simple as long/short equity funds” or as complex as credit strategy, fixed-income or global macro funds, according to Kachhla.
The secret to Tradar’s versatility, says Gualtieri, is that it’s based on a single source code: “It’s the same system regardless of the size and complexity of the fund.” The system is modular, so whether they’re executing complicated electronic trades or simply running portfolio accounting systems, clients can buy the modules that meet their needs.
Call it “Madoff syndrome,” says Gualtieri, investors are “more in the driver’s seat” now, and they are demanding that funds show they have the necessary systems in place, particularly in terms of risk management. The firm has always provided something in this department, says Kachhla:
“We’ve had some risk capability that was inherent with capturing certain security data enabling users to complete basic exposure reporting or run certain performance reports by industry or by strategy.”
Now, he says, they’re extending that capability. In the first phase of the project, Tradar will team with a risk management vendor that has created a platform allowing Tradar to pull risk management data into its system. The traditional approach to risk analysis, says Kachhla, is for a system like Tradar to publish data that is “consumed” by a risk system, which then creates a report for the client.
“What we’re moving towards is pulling risk measurements and displaying them in context with portfolio data already in Tradar, using integrated third-party risk tools,” he says.
Kachhla says there are two forms of risk analysis—risk management, “from a portfolio-wide perspective,” and analytics, which is “more on an investment by investment basis, looking at what-if scenario testing, the incremental impact of additional investments in the portfolio and how that changes the risk profile.” Longer term, Tradar intends to integrate with a risk analytics vendor to provide the latter type of analysis.
For now Tradar is focusing on the first type of risk analysis, targeting middle and back office staff, says Gualtieri, who traditionally would be consumers of an overnight report. Insight’s new functionality, he says, supports Tradar’s belief that rather than having overnight positions that provide a view of yesterday, clients have a greater need for real- or near-time information. New features include an active alert that will notify users across the organization if compliance or P&L parameters are breached, giving investors confidence that funds are operating within prospectus limits at all times.
Tradar is coming off a good year, which saw the successful release of Insight 4.0, strategic appointments in all regions and new client growth of more than 20%. With the alternative investment space bouncing back from its mid-crisis lows and fund managers returning to more complex investment strategies, the future looks promising for the tech provider.