Lotsoff Automates Compliance

Steady growth has inspired Lotsoff Capital Management, the Chicago-based $3.5 billion investment manager active in equities, traditional fixed income and hedge fund strategies, to implement Dataware Solutions' PTAconnect Web-based personal trading compliance system.

Rich DeMatteo, chief operating officer at Lotsoff, notes that many compliance vendors his firm evaluated targeted larger institutions, while PTAconnect more accurately met Lotsoff's requirements. "Some of the systems we were looking at were targeting larger firms—we're a 50-person shop right now," DeMatteo says. "We've had consistent growth, and with the growth of our equities business especially the need for the system was there."

According to DeMatteo, the hedge fund's need for an automated compliance system became more apparent both as Lotsoff's assets under management grew and as compliance requirements became more complicated. "We've directed a number of resources to make sure our compliance is clean," he continues. "It's always been clean, but you've got to roll with the changes as you grow. I'd never heard of a 13F [SEC reporting form] until we hit $100 million."

The PTAconnect solution automates internal compliance rules; regulations from the US Securities and Exchange Commission (SEC) and National Association of Securities Dealers (NASD); Investment Company Institute recommendations and Sarbanes-Oxley rules from pre-clearance to certification, confirmation and reporting.

Lotsoff opted for Dataware's system in order to automate employee transaction surveillance and reporting without having to develop or install more expensive IT components.

DeMatteo also lauds PTAconnect's ease of implementation and integration with the asset manager's accounting system; it took Lotsoff fewer than six weeks to go live on the system.

"We were able to use links from our accounting system to dump feeds of our current positioning into our restricted lists—their outside hub and servicing have worked out very well," he says.

Prior to the Dataware implementation, Lotsoff had relied primarily on manual processes to handle its compliance function, according to DeMatteo.

"Compliance had been very manual for us—we had a listing from our accounting system, and a lot of it was handled via e-mail. We did outsource some of our post-review externally to some of our administrators, especially for our mutual fund, but we knew we needed to go the next step for pre-clearance and enhance the audit trail."

Chris Aronis, vice-president of sales and marketing at Dataware, explains that while PTAconnect is applicable to many sectors of the financial services industry, buy-side pickup has gained momentum in recent months due to a more rigorous regulatory and compliance climate.

"Investment advisers are a very active customer base now," Aronis says. "Regulations are getting very complex, and it's virtually impossible to keep up with these things manually."

In more hedge fund news, Boston-based TD Securities' prime brokerage unit signed with Mellon Financial's buy-side technology developer Eagle Investment Systems to provide the vendor's portfolio management, investment accounting and performance measurement systems to its hedge fund and asset manager clients.

With assistance from Eagle's professional services group in Toronto, the firm has begun implementing Eagle Pace for portfolio management, Eagle Star for high-volume investment accounting, and Eagle Performance for performance measurement.

TD Securities officials indicated the need to provide value-added technology services to their hedge fund clients prompted them to sign with Eagle. The firm's brokerage unit will offer the systems through its hedge fund client Web site.

TD Securities opted for Eagle's systems for their scalability and flexibility, as well as their ASP-based technologies.

"They chose Eagle primarily for scalability reasons, as well as our open architecture and our ability to integrate with some of their existing technologies," explains MaryAnn Hagmeier, hedge funds product manager at Eagle. TD Securities declined to comment.

According to Hagmeier, the prime broker will migrate its clients to Eagle on a scheduled, incremental basis over the next several months. TD Securities will pay a subscription-based fee to the vendor.