ASPs give investment managers off-site options
The cost and complexity of technology for managing investments are a burden on firms, especially those smaller organisations without the resources for IT departments. On the other hand, technology is of increasing importance for all aspects investment.
But where firms that wanted to use technology once faced having to buy and install it onsite, now they have the option of hiring the technology they need online. A number of new suppliers are emerging with dial-up service products aimed at investment managers, while several of the traditional suppliers to the industry are adapting their products for delivery in this way.
In January, leading investment management and accounting software supplier Princeton Financial Systems, based in New Jersey, introduced an internet-based version of its PAM software. Called ePAM, the service allows firms to use the software over the network, sending their data to the company’s processing centre.
“Firms benefit from the increased security, reliability and scalability without a major up-front investment,” says Richard Fox, Princeton’s director of network technologies.
ePAM is an internet version of PAMConnect, an online service launched by the company last year that uses dedicated lines to link firms to Princeton’s processing centre. The company says that it has 12 firms currently testing ePAM, although it would not name any of them.
Princeton is now part of a new category of software suppliers called application service providers (ASPs). This is a new term for an old concept. Back in the days when computers were giant mainframes, many organisations had their processing done by online bureau services. This approach has never really gone away although it fell out of fashion with the advent of minicomputers, PCs and client-server systems. But these approaches meant that firms had to find the resources to buy, manage and keep up to date with technology themselves. Now, networks such as the internet have become faster, cheaper and more accessible, just as software has become more complex and more critical to business, so the concept of having data processing done off- site by a specialist company is attractive once more.
Princeton is one of a growing number of ASPs that are offering services aimed at investment managers. Some are aimed at the front and middle office, such as pricing and risk management services from New York-based MeasuRisk.com and Askari, a subsidiary of State Street Bank, while other are focused on the back office, such as services from London-based Wilco International, New York-based Infinity and New Jersey-based Automatic Data Processing (ADP). All of these are in the early stages of operation, but clearly this is an important trend in how software will be delivered in future.
For its risk management requirements GTE Investment Management, based in Irving, Texas and one of the largest pension plans in the US, is working with the start-up company MeasuRisk.com to create a new on-line risk measurement service aimed at pension plans, mutual funds, hedge funds and insurance firms.
One of the main reasons that GTE chose a service bureau option is because it does not have the resources to run its own comprehensive system on site, says Britton Harris, president of the company. “Firms like ours are operating with large asset responsibilities but very small staffs for the most part. If we were to use our own resources (to implement a risk management system) we would probably have to divert our entire company to the one project.”
MeasuRisk.com is using risk management technology from Toronto-base specialist Algorithmics, the vast majority of whose 75 customers so far are banks. GTE is working with MeasuRisk.com to tailor the system for the asset management business.
Other suppliers are taking the MeasuRisk.com approach and looking to meet the demand among asset managers for risk software through bureau services. Bankers Trust, now owned by Deutsche Bank, has run a bureau risk management service for some time and has a number of custody banking and other clients. It is now enhancing its service for investment firms and pension funds. New York-based TheBeast.com is broadening the asset classes that its on-line data and risk analytics service handles in anticipation of asset management clients. New York-based supplier Axiom Software Laboratories has been running a bureau service version of its RiskMonitor risk management system for around nine months and so far has a number of fund managers as clients, although it will not name any.
In February, a new company called Cygnifi announced an Internet-based risk management service aimed at asset managers, corporates and smaller banks. Backed by JP Morgan and with technology from database specialist Sybase, analytical software specialist Numerix and network provider Bridge Information Systems, the service will focus on derivatives and offer pricing, portfolio valuation and risk factor calculations.
For the back office, Infinity’s eFinity service covers payments, settlements, Swift messaging, confirmations and general ledger postings for derivatives, foreign exchange and money market instruments. It is based on Infinity’s back office software that it previously only sold as a package for installation at the user’s site, and is operated in collaboration with Infinity’s sister company SunGard Computer Services, an established bureau service specialist. Two Scandinavian banks are currently helping Infinity test eFinity after which the company expects to sign up a number of investment management clients. ADP’s is offering a similar service to Infinity’s. In this case, the back office application is that of ADP subsidiary OM Trading Systems which ADP’s online specialist Brokerage Services Group will operate.
International broker Jefferies & Company is the first to sign up for Wilco’s Gloss STP Bureau, the online version of its Gloss clearing and settlement system, although Wilco expects the service to appeal to investment firms who are likely to be attracted by the same factors as Jefferies.
Randy Stouber, senior vice president responsible for international operations at Jefferies, says that Wilco’s STP Bureau offers a cost effective way of centralising its global IT infrastructure, as well as guaranteeing that it will always have access to the latest version of Gloss.
Major technology suppliers are now getting together to create standards and practices to promote the delivery of applications online. Princeton has joined the ASP Industry Consortium, a US based body whose members include IBM, Microsoft and Sun Microsystems, a leading supplier of hardware and networking to financial services firms. Investment managers could be major beneficiaries of this new approach to software delivery.