Tim Bourgaize Murray: Where You’re Going; Where You’ve Come From

Lincoln Motor Co. is running a series of sleek commercials in the US at the moment featuring Matthew McConaughey and directed by Nicolas Winding Refn, who is more famous, appropriately enough, for directing the film Drive.

My favorite of these takes McConaughey behind the wheel and back to Austin, Texas where, while streetlights pass by and but for an instant you can just see a lit Texas State Capitol in the distance, he waxes philosophic about the value of going home. “Not to reminisce or chase ghosts,” he explains, “but to see where you’ve been, how you got here, to see where you’re going.” Ambient music pulses underneath.

Now it could be that I’m biased by a memorable trip earlier this spring to Austin, which included a visit with that town’s own $1.1 billion Meritage Capital, but beyond its emotive aesthetic qualities, the TV spot’s message seems apt for hedge funds and their technology, too. The point isn’t about nostalgia; it’s about why every journey—personal or organizational—is slightly different. The past really matters as a reflection not only of existing technology estate and relationships, but also as a shaper of opinion.

Four Stories
That really came out this month as I put together a survey of four boutique firms, including Meritage, which all are aiming to do very different things, mostly because they’ve originated from very different places. And understanding this point seems immensely important, as technology providers have geared up in the past few years to cater to smaller funds, providers that sometimes and perhaps mistakenly market their solutions first and foremost as “get off the ground quickly” or everything-in-a-box. Fast and easy seems appealing enough—and, no doubt time to implementation will always be important—but despite their size, I’m not sure either of these things is what most boutique managers value most.

Indeed, the shared characteristic of all four firms I interviewed was the intensive, long-term nature of the technology projects they’ve recently undertaken. Meritage and its pursuit of liquid alternatives, South Ferry’s months-long project scrutinizing its vendor relationships and technology risk, Mada Group bringing its proprietary risk reporting framework from Millennium Management, and Tiburon Capital doing just the same with its Brace trading methodology.

While boutique managers all play a game that’s slightly different, the sentiment about pushing toward something greater seems just about the same.

In fact, Tiburon’s chief investment officer, Peter Lupoff, may have had the most debate-worthy take on the whole process, when he argued that technology these days too often poses as a simulacrum for real operational experience and wherewithal, and that it’s not enough to have a best-of-breed stack, whether hosted or internal. These firms really want their technology to work for them, rather than provide a façade to hide behind. They’re not ticking a box.

Level Setting
That could be taken many different ways. It suggests, first of all, that most small hedge funds are expecting to operate with a technical quality not seen in the past—the level has been reset. And as the project at South Ferry shows, it also suggests that resting content with a firm’s technology relationships is also more difficult to do today, as technology risk and data stewardship are now squarely on the minds of potential influential investors—to say nothing of the regulators. Whereas good technology was once a luxury for these hedge funds, today it inspires deep thoughts.

This state of affairs was probably inevitable as more trading desks continue to split off from their large sell-side and buy-side parents and wish to evolve more quickly, and as the public generally becomes more knowledgeable about threats to technology infrastructure of all kinds.

As South Ferry COO Marshall Terry put it of his own responsibilities, “I just had to up my game.” While boutique managers all play a game that’s slightly different, the sentiment about pushing toward something greater seems just about the same, and the consequences should only flow downhill to tech vendors as the space grows both bigger overall and more mainstream.