THFJ: What would you say are the critical ingredients for the successful deployment of an IT service to the global asset management market?
The over-arching theme in our industry is that the bar has been raised across the board. The level of complexity, and indeed the overall value of the marketplace we serve have been changing rapidly. We now need to be able to deploy products to meet the increasing demands of this marketplace, but it is not something that a firm can do overnight. It requires decades of development to get to where Advent is now.
It also takes a lot to support an organisation of this nature, and to cope with the changing landscape of the financial services industry. To do that we need people with talent and knowledge who understand the nuances of the financial market. We have an extensive internal training program, including specific education courses intended to help our staff develop. I think it is imperative that, as a business, we retain our best people. Once we've trained them, we don't want to lose them or their domain knowledge, as one of our key strengths is the high level of experience of our staff.
Another success factor has to be our global presence and our global visibility. We continue to invest in our business on a global basis in order to keep moving forward, and keep abreast of clients who themselves think internationally.
THFJ: What is behind the record quarterly profits Advent continues to be able to put out?
It takes a lot to get to this level of success, in our case it is 24 years in this market. I really feel we have been in the right place at the right time. We've had all the right pieces of the puzzle at our fingertips – we've had the scale, the capacity, the knowledge base, and the right products. The success of the market we have been serving has also helped us a lot.
THFJ: Why has Geneva become so entrenched with both hedge funds and their service providers?
Geneva has been popular with service providers because ultimately, they are performing an accounting function. Geneva represents a very deep and robust accounting engine. It does not really have a peer. If a business needs to differentiate itself on the strength of its accounting, it needs the best engine available. They would be at a major disadvantage otherwise.
Geneva is also purchased because of its ability to account for the complex instruments that are becoming increasingly popular in the hedge funds space. The reason it succeeds here is because we did not use an equity system for inspiration when we were developing it – we built it from the bottom up, and this has allowed it to cope with more sophisticated instruments, like derivatives. It has also been the beneficiary of the virtuous cycle of word of mouth – its reputation in the hedge funds industry has been growing organically, independently of our marketing efforts.
THFJ: How has Geneva 7.0 been received by the hedge fund community?
The reception has been strong. We launched it with a big splash in Las Vegas in September, and it was well-received there. Geneva is a deep accounting system, but it is not a pretty one. It is an engine that the techies love for its usability and the breadth of its footprint. Version 7.0 has lots of extra bells and whistles, including user tools that make it more friendly for non-techies to make use of. I think people will like its new look.
In prior versions of Geneva we addressed many total cost of ownership issues for our clients. For the past few years we have run on a distributed architecture and provided industry standard integration tools. Doing so allowed our clients to save money in terms of direct hardware cost and technical resources. With 7.0 we have a totally new user interface based on Microsoft. Net 2.0 which will allow clients to rapidly train new users, customise workflows by job function and responsibility and create custom reports based on firm requirements. Prior to 7.0, employees had a longer learning curve and firms needed deeply technical resources to perform any customisation. Now anyone with a business analyst skill set can rapidly contribute.
THFJ: How can Advent help fund managers to meet the increasing demands laid on them by regulators on both sides of the Atlantic, and by calls for increased transparency?
That's really at the core of what we do. We spend money on research and development to create the IT solutions that will help our customers to run their businesses, and comply with the regulatory environment. For example, we're working on a pre- and post-trade compliance system which we hope to launch this quarter. Every day we're working on our accounting platform to make it more transparent. If the data feed slope helps the downstream systems work better, then you're going to have less spreadsheet clutter. You need to have as much data in your core system as possible.
We visited a hedge fund recently a year after they had implemented Geneva internally, and one of the big benefits they pointed to was that the arguments that used to brew up between the various functional areas had gone away. Geneva was feeding the data to their sub-systems, and the time they spent fighting over the numbers, well, that had all gone away. Having a single data source can do wonders for your business happiness quotient.
THFJ: What in your view is behind the rapid increases in IT spend projected for both hedge funds and prime brokers in 2008?
The increased complexity of the instruments fund managers are dealing with, the overall growth in the industry, and the heavier burden on compliance. There are much bigger demands on transparency being made, and the credit problems over the summer have focused a lot of attention on risk management systems. Nobody wants operational systems that won't work. Risk management systems don't make money for funds, but there is a big difference between a low and a high error rate. This translates into real money for a firm. I think funds and investors are more aware of the need for reliable and robust systems than they were.
THFJ: What IT lessons do you think service providers and asset managers generally took away from the credit crunch and associated pricing problems in this sector over the summer?
The biggest lesson has to be on the risk management front. Yes, the ratings agencies were revealed as not being capable of rating complex structures properly, but this has led firms to the conclusion that those selling these securities, or investing in them, have to have their risk management issues resolved, as a number one priority. The whole area of pricing difficulties, and transparency issues, means there is an opportunity out there for the development of better pricing models. The spotlight is on the risk management system's ability to properly evaluate what you've got in your portfolio.
THFJ: As a corollary to that, how does Advent, as a firm, plan to keep up with the diversification trend into illiquid, hard-to-price, and more sophisticated instruments on the part of hedge fund managers? Can more be done?
We are never done in this business. We simply have to run faster as these challenges will never go away. Ultimately, Wall Street is a very creative industry, and the problems over the summer will, we believe, lead to a whole new wave of innovation designed to make investors more comfortable and to satisfy some of the problems that have cropped up. As an established technology provider, we have front row access to these innovations. Our customers are the buyers and sellers, and they live on the cutting edge. We sit toe to toe with them and are thus able to understand better what they are working on. There is no book you can buy that can replace that knowledge.
THFJ: As you grow the Advent business in the European market, are you noticing any significant differences with the US hedge fund market? Are European managers and service providers facing any different challenges which Advent can help them with?
The biggest difference is probably one of mandate. In the US, hedge funds typically have a deep level of internal accounting. In the UK regulatory environment, there is less need for such an accounting capability. But we see the landscape shifting, and we expect that European hedge funds will eventually need more robust systems in place. This process is being driven by the institutional investor community, and by the regulators. We have some great solutions that will help hedge funds to cope with these trends, and I think we can help them to do this well.
THFJ: How will your increased presence in a number of European countries change the way you deal with clients on this side of the Atlantic?
I think our presence in Europe is going to enhance the opportunities we have to service our customers. Many of the firms that use Advent are global in nature, they are typically operating on a global platform. This goes back to what I said earlier: the bar is being raised all the time in the technology stakes, and you now need scale to be able to compete. You need to be bigger, and to have more talent, in order to be able to do a better job.
THFJ: Is the increased participation of institutional investors changing the way technology providers service their hedge fund clients? If the bar is being raised in terms of the required IT infrastructure for hedge funds and funds of funds, in what ways are you seeing this manifest itself?
It is making it more demanding, yes. We need to be able to understand investor concerns better, particularly in the risk management area, and in light of the summer's events. Failures like that at Sowood Capital have meant that investors are more concerned than ever about understanding a manager's investment philosophy better, and ensuring his infrastructure is sound. It puts the fund manager under more pressure, as going forwards this is not going to be something he can crack using spreadsheets. There will be more scrutiny. I guess the big consequence of the summer is that investors are simply going to be paying more attention to what fund managers are doing.
THFJ: How critical do you think Microsoft-based infrastructure will be as an underlying system for innovation in the financial technology sphere, particularly for asset management systems? Are you exploring any alternatives?
We have explored other alternatives, but ultimately the Geneva server is based on C++ running under Solaris. We have used C++ running under Solaris since inception as C++ gave us the coding power that we needing and Solaris is the operating system that our clients tend to use on their mission critical servers. However, for the user interface and experience, Microsoft through .NET is making very strong inroads into the typically Java-based world of financial services. Correspondingly, our UI development is now all .NET 2.03.0 as we have seen Microsoft become more successful and aggressive than Sun in the financial services vertical.
Solaris is the right platform for the back-end because of its scalability and its widespread use on industry platforms, including those of service providers. I don't think anyone is ready to change that just yet. After all, Wall Street was built on Solaris at the back end. This is what everyone is using, including as a document processing environment. Changes within the industry, including the growing complexity of customer demands, may change this one day, which will no doubt create opportunities for IT providers at the same time.
As founder and CEO, Stephanie DiMarco has engineered the growth of Advent into one of the world's leading providers of software and services to the investment management industry. Prior to founding Advent, DiMarco worked in the investment industry as a financial analyst and portfolio manager. She serves on the Advisory Board of the College of Engineering at the University of California, Berkeley, and is a board member of the San Francisco Foundation, where she chairs the Foundation's Investment committee. DiMarco holds a Bachelor of Science degree in Business Administration from the University of California at Berkeley.