As hedge funds adopt multiple strategies, the complexity of their models has demanded a break from the traditional in-house built front-office technology stacks. Matthew Halicki – Vice President, Marketing at Flextrade outlines the key elements managers should consider when looking to partner with a technology firm.
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As hedge funds adopt multiple strategies, the complexity of their models has demanded a break from the traditional in-house built front-office technology stacks. Matthew Halicki – Vice President, Marketing at FlexTrade outlines the key elements managers should consider when looking to partner with a technology firm.
With the proliferation of data, growth into different asset classes, and upcoming regulatory changes, hedge funds are embracing a buy-and-build strategy that combines their proprietary in-house technology with an outsourced best-of-breed trading technology partner.
At a strategic level, choosing the right technology partner is paramount to success. Balancing immediate needs with short-, medium-, and long-term goals are a key component to consider internally before evaluating a technology partner. Technology partners that offer a robust Order and Execution Management System (OEMS) coupled with a commitment to R&D, and deep domain expertise, will ensure the fund continues to grow and generate alpha.
A robust, functionally rich oems platform
Hedge funds have dynamic business requirements, and as such the OEMS technology supporting the front-office should be equally dynamic.
If the immediate goal is to swap out legacy technology while integrating and maintaining control over proprietary workflows, then a technology partner should offer a solution with tight and deep integrations between the OMS and EMS to solve complex problems. This will allow a fund to control and optimize workflows all while still having the flexibility to maintain the “secret sauce”.
The front-office team and technology partner should work closely together to understand a fund’s proprietary workflows, how they integrate within the OEMS, and generate innovative solutions that solve problems unique to a particular manager. The technology partner should suggest use-cases from similar clients to offer best practice, “out-of-the-box” workflows that streamline operations.
A technology stack should also be evaluated for features deemed essential to the trading desk. This includes fully integrating systematic, rates, credit, and fundamental long/short strategies from the same system while seamlessly handling multi-factor risk models, complex order marking and compliance across multi-manager firm structures. Or rather, it could be native centralized order-marking that automatically calculates positions in real-time to determine whether it’s a buy, buy-to-cover, sell, or sell-short, while auto-adjusting for firm-wide positions, and/or regulations.
When evaluating an OEMS provider, funds should consider how the business will scale over time. If the long-term goal is to grow into a multi-asset strategy, then a multi-asset OEMS will avoid fragmented workflows between asset classes and ensure best execution.
A demonstrable track record of R&D and innovation
While a functionally rich OEMS platform is bedrock to any evaluation process, commitment to R&D and innovation is equally vital.
Technology partners that combine company and client driven roadmaps will offer a unique approach to product development that grows with clients’ needs and industry trends. Innovations in the core OEMS and integrations to third-party solutions that provide advanced functionality, will generate alpha and allow trading desks to stand out.
Adaptability and speed are integral for funds, to ensure a technology partner is nimble – quick to make changes and adjustments to the OEMS. Independent providers can operate on tighter time frames with shorter implementation and support time.
Technology partners should be attuned to front-office needs that can often be seen as wish list items, as these items can quickly become an industry norm. Interoperability best illustrates this, as it was initially viewed as “nice-to-have” and is now a “must-have”. This is the result of demonstrated commitment to technology innovation, from both technology providers and clients.
Deep domain expertise and client service
Underpinning the OEMS should be a support team with deep domain expertise. While a functionally robust OEMS should be central to any front-office transformation initiative, the partnership and client service experience should not be ignored. For consistent support, the implementation team should also serve as the client service team and support the implementation period straight-through to achieving long-term goals. The team should not only be responsive but should be inquisitive – looking at the funds processes on a larger scale to bridging the gap from immediate needs to short-, medium-, and long-term goals.
Matthew Halicki, Vice President, Marketing, FlexTrade
