Empire Builder: Blackstone CTO William Murphy

On the credit side, Murphy has a dedicated team led by managing director Patrick Ochs, sitting alongside the traders to augment its infrastructure as required, whether to facilitate a particular trade or analyze risk. The fund’s complexity—including its specialties in leveraged finance, collateral loan obligation vehicles, and mezzanine debt—demands its IT be completely business-aligned, Murphy says. Meanwhile BAAM, as the world’s largest fund-of-hedge funds, is a more outward-facing endeavor, with proprietary software being development-managed by Salvatore Paxia.

“With BAAM, we’re doing detailed diligence of what managers are trading, much of it in public securities, so we need a straight-through process that captures that data, allowing us to understand everything we hold much more frequently than in private equity or real estate,” Murphy says, noting that the firm manages, monitors, and allocates assets to 170 managers globally, with many of them using Blackstone infrastructure and analytics in-house.

Tosi says technology was always a key part of the BAAM proposition. “Software conceived, designed and built inside Blackstone now touches almost 50 percent of the top alternative managers worldwide—perhaps the greatest measure of our ability to outpace others in innovation,” Tosi says, and it is Murphy’s goal to make that large presence matter.

“Leveraging its size, BAAM is able to negotiate customized offerings and accounts, and we’re investing quite a bit right now in enhancing their daily workflow, from engaging a client through to creating the product and reporting and managing the risk around it,” Murphy says. “This is a unique flow, and we look to wring more efficiency out of that process.”

Clear Picture
The second feature—a need for greater transparency—revolves around the changing business of private equity (PE) itself, as well as the firm’s initial public offering in 2007. “I spoke to other technologists at KKR and Fortress, [also public PE firms], and they felt the same, that going public can be a catalyst to mature on technology and data sides, if only because disclosure requirements are higher. Net–net, there are a lot of operational benefits,” Murphy says.

But greater transparency has also come to the fore as private equity competes for fewer investor dollars, with higher institutional expectations about information. “It will continue to be an overall trend, and there’s no way to stop it, and really no reason to want to,” he says. “We want to manage investors’ information in a way that creates a clear, full picture of their Blackstone relationship, and view being good on transparency as a competitive advantage.”

CFO Tosi says he agrees, and offers that near-real-time access to results, valuations, and portfolio company operating information is rapidly becoming the new standard for private equity today. “It is not just that no one else does that—they simply can’t. Our clients appreciate and value that advantage,” he says.