Michael Watson is the founder of hedgineer.io, which partners with asset managers to provide end-to-end engineering solutions. This document outlines the key categories and components of technology solutions across trading, research, risk, and operations for hedge funds. It emphasizes having a single set of integrated solutions for each component and ensuring relevant users can effectively perform their jobs. The document also provides takeaways on prioritizing business problems over technology, having clear technology owners, and never losing sight that the overall purpose is driving returns for investors.
Michael Watson is the founder of hedgineer.io, which partners with asset managers to provide end-to-end engineering solutions. This document outlines the key categories and components of technology solutions across trading, research, risk, and operations for hedge funds. It emphasizes having a single set of integrated solutions for each component and ensuring relevant users can effectively perform their jobs. The document also provides takeaways on prioritizing business problems over technology, having clear technology owners, and never losing sight that the overall purpose is driving returns for investors.
Michael Watson is the founder of hedgineer.io, which partners with asset managers to provide end-to-end engineering solutions. This document outlines the key categories and components of technology solutions across trading, research, risk, and operations for hedge funds. It emphasizes having a single set of integrated solutions for each component and ensuring relevant users can effectively perform their jobs. The document also provides takeaways on prioritizing business problems over technology, having clear technology owners, and never losing sight that the overall purpose is driving returns for investors.
Michael Watson is the founder of hedgineer.io, which partners with asset managers to provide end-to-end engineering solutions. This document outlines the key categories and components of technology solutions across trading, research, risk, and operations for hedge funds. It emphasizes having a single set of integrated solutions for each component and ensuring relevant users can effectively perform their jobs. The document also provides takeaways on prioritizing business problems over technology, having clear technology owners, and never losing sight that the overall purpose is driving returns for investors.
About Us ● Hedgineer.io ○ Partners with asset managers to provide end to end engineering solutions. ○ Fractional engineering leadership, software engineers, quantitative developers, front-end developers, project managers, designers, and analysts in a single contract based on your needs ○ Hedgineer Podcast on Apple Podcast, Spotify and Youtube ● Michael Watson ○ 7+years across Citadel and Citadel Securities Engineering ■ Head of Equities Engineering (All data and tooling for fundamental equities) ■ Head of Enterprise Data (Security Master, Pricing Master, Entity Master) ■ Head of SRE Asia (All things APAC) ■ Head of Data Engineering (All Alternative Data) ■ Full time Software Engineer (Python, C++, JS) Overview ● There are 4 Categories of Technology Solutions across all Asset-Management ○ Trading Technology ○ Research Technology ○ Risk Technology ○ Operations Technology ● 15 Core Components across these 4 groups ● Good technology in asset management means ○ Making sure each component is addressed ○ There is a single set of solutions for each ○ The relevant users of each system is effectively able to do their job
Don’t Make Perfect the Enemy of the Good
4 Categories of Hedge Fund Technology 1. Portfolio Management System (PMS)
01 Trading Technology 2. 3. Order Management System (OMS) Execution Management System (EMS)
4. Research Data Warehouse - Snowflake, S3, SQL, Windows Explorer
5. Research Management Platform - Excel, BBG, Python, DataBricks, AlphaSense,
02 Research Technology 6. etc. Backtesting Engine 7. Market Data - Real time & delayed
9. Post Market Trading (PMT) - Reconciliations, Clearing & Settlement
10. Accounting - EOD PnL and NAV 11. Portfolio Finance Technology - Treasury Management
04 Operations Technology 12.
13. Legal and Compliance - Pre Trade and Post-Trade Checks Security & Entity Master 14. Reporting - Regulatory and Investor 15. Coverage, Desk and Risk Limit Management 1. Portfolio Management System (PMS)
01 Trading Technology 2. 3. Order Management System (OMS) Execution Management System (EMS)
- Encompasses technology from Order Entry through Trade Confirmation
- Unless it is a core competency, just buy it - Important Cross-Technology Touch Points - OMS -> Compliance Tech (Ops), Market Data (Research), Risk Management (Risk) - PMS -> Operations Technology (All), Risk Management (Risk), Research Data (Research) - EMS -> Market Data (Research), Compliance Tech (Ops) - Controversial - Having a central PMS integrated into the rest of the technology stack is the single most important integration in the entire stack - Not including Post Market Trading Technology and instead in Ops - Not including Market Data and instead in Research Technology 4. Research Data Warehouse - Snowflake, S3, SQL, Windows Explorer 5. Research Management Platform - Excel, BBG, Python, DataBricks,
02 Research Technology 6. AlphaSense, etc. Backtesting Engine 7. Market Data - Real time & delayed
- Research Data Warehouse has MANY shapes and sizes however commonalities: - Time series in OLAP optimized storage - Snowflake or BigQuery for $$ (benefit of referential integrity) - Parquet/Arrow + Spark/Athena to save some on cost with plenty flexibility - Don’t Hate on PostGRES or SQL Server - Including ETL, Data Catalog, and MDM in Research Data Warehouse - Research Management Platform SHOULD BE ITS OWN SLIDE - Development Env (Python, R, Excel) - Research Platforms like Visible Alpha, Bloomberg, and Alpha Sense - Don’t forget about notes! - Backtesting Engine needed for both discretionary and systematic - Market Data more and more vendor solutions - Important Cross-Technology Touch Points - Research Data Platform -> Risk Management Platform (Risk) - Market Data -> Trading Technology - Controversial - Including a single bullet point for Research Management Platform - Including Market Data as separate component - Including ETL and data and data quality as Research Data Platform 03 Risk Technology 8. Risk Management Platform: Factor Models, VaR, Scenario Analysis, R, Python
- Risk Management Platform takes various shapes and sizes, but there needs to be an explicit set of solutions where risk is derived and disseminated to decision makers - Common Products: - Risk Decomposition using off the shelf and in house factor models - Performance Attribution using the same models - Fund Wide Scenario Analysis (Black Monday, 9/11, Covid, Flash Crash) - Hedge Portfolio Construction - Portfolio Optimizer - Pro-forma portfolio analysis - Important Cross-Technology Touch Points - Risk Management Platform -> OMS, Research Management Platform - Controversial - Most likely stack to be built by the end users. Just technical enough to be dangerous. Don’t always fight it but make sure they can see the big picture and don’t re-engineer other systems (share this deck). - Did not include a Risk Data Platform (probably the cause of above) 9. Post Market Trading (PMT) - Reconciliations, Clearing & Settlement 10. Accounting - EOD PnL and NAV 11. Portfolio Finance Technology - Treasury
04 Operations Technology 12.
Management Legal and Compliance - Pre Trade and Post-Trade Checks 13. Security & Entity Master 14. Reporting - Regulatory and Investor 15. Coverage, Desk and Risk Limit Management
- Most likely components to be managed entirely in Excel
- Everything is table stakes - Good Security Masters don’t have a high bar. Having 1 is good enough. - PMT is probably the biggest component on this presentation - Important Cross Technology Touch Points - Security Master -> Everything - Operations Technology (All except Coverage) -> PMS - Coverage, Desk, Risk -> Research Management, OMS - Controversial - You can gauge the effectiveness of technology by asking the head of ops how they feel about the tech stack. If you can get a lukewarm response, you are doing something right. Takeaways and Other Observations ● Understand your business problems before talking about technology ● A prerequisite to good technology is a solid process to solve business problems ● Each component should have 1 technology owner ● Risk, Operations, Research and Trading are all stakeholders in technology decisions ● Never forget the whole purpose of this in the first place - drive exceptional risk adjusted returns for your investors Questions and Contact
