Keeping Control, Cutting Costs: Marathon Boosts Risk and Reporting
April 27, 2009
Marathon Asset Management, as part of a multiyear plan to expand its middle-office capabilities, has bolstered its homegrown portfolio management and reporting system to better handle growing volumes and product expansion.
Marathon, which has $9 billion in capital under management across hedge funds, structured finance, emerging markets and real estate, built the system in 2002 to replace software from London-based Tradar. But when Marathon reexamined its needs in 2007, "we still could not find any third-party platform which met our requirements for flexible reporting and multiple asset classes," says COO Andrew Rabinowitz. "We didn't want to rely on multiple off-the-shelf systems we would have to cobble together to generate many reports."
Rabinowitz turned to NorthPoint Solutions, a New York- and Boston-based consultancy, to help design and program an enhanced system. "Recent market events have accelerated our hedge fund and fund of hedge funds clients' desire for greater control over their environments, particularly risk management and reporting, while reducing licensing costs," says Kevin Goldstein, a partner at NorthPoint, which finished the project in January.
"Hedge funds are spending money on technology that will help them create more transparency and give their clients the reassurance they desire after the credit crisis," says Cheyenne Morgan, analyst with Tabb Group in New York. However, budgetary constraints mean that the buy side will have to spend most of its IT dollars on leveraging existing technology rather than making large-scale investments in new platforms.
For many young firms, Marathon's efforts could serve as a model. New York-based Marathon, which launched in 1998 and has offices in Singapore and London, initially built its portfolio management for a "seven-digit figure" that was far less than that of licensing--and customizing--an external platform, says Rabinowitz.
But cost wasn't the only consideration. "There were plenty of licensed systems that could handle long-short equity, but few could address the fixed-income universe, credit derivatives and collateralized debt obligations as well," recalls Rabinowitz. "It wasn't only about processing trades correctly but developing a system as robust as that of an institutional brokerage firm" such as Marathon's former prime broker Goldman Sachs.
Though Marathon registered in 2003 with the Securities and Exchange Commission--often an advantage for hedge fund managers seeking institutional funds--Rabinowitz says that decision did not play a part in the development initiative.
Measuring Risk
In 2005, the firm shifted its focus to strengthening its risk management capabilities, adding Imagine Software's hosted Derivatives.com service in New York to support its equity volatility and fixed-income trading activities with portfolio stress tests, what-if scenarios and value-at-risk scenarios. The Imagine service did not replace any of Marathon's existing risk measurement systems, but rather allows the firm to verify calculations provided by its in-house platforms, according to Rabinowitz.
"Imagine can report P&L across a range of volatility and helps pinpoint hidden gamma risk necessary to manage Marathon's options strategies," says John Duddy, director of risk management at Marathon, which implemented Imagine's service in its Singapore office last year.
Steven Harrison, president and COO of New York-based Imagine, points to Derivatives.com's quick installation as a draw. "Hedge funds only need a PC and an Internet connection to use an industrial-strength system that comes complete with comprehensive market data management," he says.
