A Case Study in Vendor Evolution

In the January issue of Waters, we profile Olympian Capital, along with its founder, Michael Levas, and its recently hired chief investment officer Arun Kaul. Olympian is a small hedge fund based in Fort Lauderdale with an interesting story to tell.

To build its new multi-asset trading platform, the firm chose to tap into the vendor community rather than keep the project in-house. This jumped out at me because prior to joining Olympian, Kaul was the co-founder of Hillsdale Investment Management, a Toronto-based hedge fund.

For 15 years, Kaul had built all the firms systems internally, rarely turning to the vendor community. He and Christopher Guthrie grew the firm from $2 million in assets back in 1996 to a respectable $500 million today.

So Kaul is deeply familiar and experienced with how to build a trading platform. Yet when he got to Olympian, he decided to buy.

"In my previous life, we built everything—risk management, portfolio management, research, trading and execution, which is the hardest part to build in terms of keeping up with the new technologies and straight cost," he says. "Here, it was a pure business decision to outsource the technology and not build in-house because it's a huge commitment—you can't half-build something."

On the front end, Kaul says, the vendor community has massively improved its offerings—from trade execution to portfolio design—and third-party algorithms are much improved, too. In addition, there is a massive amount of cheap, yet good, data available. The challenge, he says, is aggregating that data—and all the various systems—in a responsible, efficient manner.

"A lot of what we built at Hillsdale is available today at a much, much lower cost," he says. "The challenge is aggregation because you can get pieces of it and you have to then put it on a platform to bring it together."

Where the vendor community needs to improve, says Kaul, are in the areas of risk management and accounting systems. He believes that vendors can do a better job of offering solutions for the back office.

My colleague Sitanta Ni Mathghamhna recently wrote a story that highlighted some of the frustrations that the trading community has with vendors. The main problem, says Barry Chide, head of research and innovation at HSBC, is that they do not provide "complete" offerings, and they don't have adequate solutions to deal with new regulations, such as in the over-the-counter (OTC) derivatives space.

Basically, firms are looking for solutions to solve very complex processes—something that can work front-to-back—but they don't want the solution itself to be complex. Easy enough, right?