Hedge fund and alternative fund firms might prefer to outsource much of their middle and back-office work but when it comes to front-office functions, they are relying on third-party platforms provided by ConvergEx Group's Eze; Bloomberg and Thomson Reuters, according to a survey just released by Eze Castle Integration.
Order management and trade execution management systems are needed to effectively manage day-to-day trading and order flow. Streamlining the necessary parts to manage a firm's investment process, an OMS solution is the first line of offense for financial firms, says the Boston-based firm specializing in software integration services for the alternative funds market.
Its findings, based on a survey of about 320 financial firms in the US and Europe, confirm anecdotal evidence of the alternative fund industry's favored front end and market data providers. Of the 320 companies, more than half represented hedge fund managers; the remainder reflected other alternative fund management shops and traditional fund managers.
Thirty two percent of the firms surveyed cite ConvergEx Group's Eze order management system as the one they used while Bloomberg's Asset and Investment Manager (AIM) came in second at 23 percent. Both firms ranked top of the list in all product classes. The reason: both Eze and Bloomberg offer a one-stop approach to trading, portfolio management and compliance within an integrated suite of applications.
"Eze OMS continues to dominate the hedge fund market by adding new and improved feature sets to entice funds such as its new portfolio risk management tools which allow for valuation and scenario-based reporting to analyze equities, financial futures and financial indexes," says the report.
Going hand in hand with front office order management systems are market data providers, whose information is needed to make quick trading decisions. Although firms typically use more than one, Bloomberg outdid rivals by a landslide courting favor with over 90 percent of the respondents. Thomson Reuters came in a distant second with nearly 20 percent. However, 80 percent of the firms using Thomson Reuters are also relying on Bloomberg.
On the market analytics front, survey respondents were also likely to rely on Bloomberg and Thomson Reuters. Once again, while most firms use multiple systems for analytics nearly three-quarters are using Bloomberg either exclusively or in conjunction with other services. Thomson Reuters came in second with a 16 percent vote and S&P Capital IQ came in third with a 14 percent approval rating. "Once again Bloomberg continues to dominate the market, which may be an indications that firms prefer to leverage various solutions from one vendor. Thomson Reuters uses a similar strategy in bundling its market analytics with a portfolio management tool to increase ease and flexibility for customers," says the report.
According to Eze Castle Integration, about a third of the firms surveyed were not using any third party portfolio accounting system and about 60 percent of the firms are not relying on a licensed risk management system, suggesting that alternative fund managers are relying on third-party service providers. That might not be a bad idea, particularly for small to medium-sized firms which lack the in-house infrastructure to meet increased pressures from institutional investors and regulators to disclose a lot more about their operations. Fund managers which rely on event-driven and global macro strategies are susceptible to greater portfolio risk due to market changes.
For those opting to rely on a licensed product for portfolio accounting, Advent came in first with a 37 percent approval rating for its APX and Geneva platforms combined. Advent also topped the list for risk management systems, albeit with a mere 7 percent rating.
Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)