John DiRocco
CEO, HedgeSpeed Technology
Getting high returns irrespective of whether markets goes up, down or side ways, is what hedge funds do. In fact, unlike equities where everything depends on how the market moves, whether it is soaring or sinking, hedge funds behave very differently. Making money in hedge funds depends a lot more on your fund manager and his skills rather than the performance of the market.
However, as the hedge-funds market grows because of increased disposable incomes and liquidity, there is need for tools and solutions to better assess hedge funds’ performance, and to reduce the existing de pendence on the maturity and skills of fund managers. Moreover, the complexity of financial markets and the increasing regulations on the once unrestricted hedge-funds market also calls for the use of tools that enable portfolio management with high-quality reference financial data. Lack of such solutions mean greater risk for the invested amount.
Yet, the fact is that there are scarcely any solutions or solution providers in the capital-markets space, who have dedicated solutions for the hedge-funds market. The market lacks portfolio finance systems for hedge-fund professionals that cater directly to the needs of hedge funds.
“The hedge-fund middle-office services are crying for technology,” says John DiRocco, CEO, HedgeSpeed Technology, a financial-software solutions company set up in 2005 to offer solutions for effective and efficient automation solutions around liquidity management.
Mid-office Process Outsourcing
Realizing that while there are umpteen solutions available to take care of the front- and back-office needs, there is a void of liquidity-management solutions in the middle-office segment for hedge funds, and confident that “throwing bodies at the jobs” cannot solve the unique issues in the hedge-funds industry, early this year DiRocco set about finding ways to fill the technology void in the middle-office area. He set about evaluating IT service providers that both understood the capital markets, and were flexible to work with a company that had only 10 employees. And, to his disappointment, he found very few.
HedgeSpeed aims to provide its customers a single middle-office platform that spans the complete hedge-funds spectrum, including stock locate, borrows, swaps, margin and cash management. Predictably, it wasn’t easy to find a provider that had demonstrable experience in the domain.
Soon into the effort of finding an IT service provider, did HedgeSpeed realize that a generic software-development company wouldn’t be able to provide what they were looking for. They needed someone who was familiar with the capital market and was open to change and innovation. The provider’s understanding of the domain was critical to HedgeSpeed, as it was seeing an outsourcing partnership freeing them up to concentrate on building customer relationships and market presence.
In August this year, after much evaluation of their work, DiRocco found a partner in DataArt, a Russian IT-services company, headquartered in New York, that has industry expertise in the capital-markets space. To HedgeSpeed’s benefit, there was already some exposure that DataArt had that led HedgeSpeed to show faith in them to handle all development for their middle-office liquidity-management solutions. DiRocco had been closely watching the work the provider had done for Paladyne, a company that is penetrating the hedge-funds space and he was “impressed.”
DataArt would now take care of all the software-development work for HedgeSpeed’s unique needs, as also quality assurance.
“We enabled Hedgespeed to do things faster.
The whole premise is acceleration.”
Alexei Miller, EVP, DataArt
Under the present scheme of things, DiRocco declared that this would be a multiyear strategic deal, and HedgeSpeed would pay for the resources used. While this was a unique deal from the point of view of a customer, the service provider also brought in their bit of uniqueness with their model of working. Less than 10 percent of DataArt’s team works onsite unlike the industry average of 30 percent. The majority of development work is done offshore in the R&D facility of DataArt in Russia, and only the necessary integration and business analytics is done onsite.
This 1:9 ratio of onsite to offshore workforce not only saves cost for HedgeSpeed but also enables efficient resource management for both the customer and the provider.
On the other hand, DiRocco’s in-house team at HedgeSpeed concentrates on customer development and business requirements. They are now able to devote more time to establishing new relationships and bringing in more revenue streams, as they ought to.
