The Retail Distribution Review is exposing all manner of charges to the cold light of day; one area of change is in compliance-enhancing platform software.

HedgeGuard, the Parisian hedge-fund and asset-management technology firm, has opened an office in London and announced the creation of the first fund management platform to use cloud technology in the true sense of that term, to be released in summer 2014.

Compliance functions are built in and testing has begun. Compliance Matters interviewed its CEO, Imad Warde, who explained what the new venture means for high-net-worth investors and compliance officers at fund firms.

Warde commented: "The platform is for hedge funds, for investment managers, for funds-of-funds, and for family office asset-managers. Investment managers have the choice between working on our owned platform or have full ownership by implementing only the underlying technology. Moreover, investment managers can grant access to their investors which means that the HNW individual can follow his investment in real time. We can help an HNW set up his own platform and have full ownership, but this might be costly for him."

The five modules

The platform allows the investment manager to follow his investments by way of five functions or 'modules', which are:

(a) EMS as a service (execution management service), which allows the manager to send an order to the broker;

(b) position-keeping, whereby he monitors his profit-and-loss, exposure, and making allocations;

(c) risk management, which helps the manager keep an eye on the risks from derivatives and structured products;

(d) compliance, which sends him alerts every time he exceeds a limit that he has set for his investments, e.g. a maximum 10% exposure to the US market; and

(e) reporting - a consolidation of risks and exposure by currency, security type, sector, type of debt, etc.

Anywhere, Anytime, on any device

To date, every fund manager who uses a platform has to sit behind his desktop computer to do so. Platforms typically offer remote access, as this is called, and claim that this is the same thing as cloud computing. In fact, remote access (which first appeared about 15 years ago) is not the same thing as the cloud, even though most platforms claim that it is. The real cloud delivers information to smart phones, tablets, and any other devices anywhere. On a typical platform of today, all the user can hope for is web access (which the platform markets as 'revolutionary' when in fact it is not).

Imad Warde told CM that with HedgeGuard, uniquely, the fund manager will be able to use any device, anywhere: "The platform delivers intelligence that the client accesses through anextremely user friendly interface".

The software will be downloaded through 'application stores', online stores where users can browse through different categories and genres of applications and download and install them onto their devices. Warde added: "You needn't bring your computer to the beach; you need only bring your mobile phone.

"There's a 'server side' and a 'client side' to every application. We are going to offer the client side on a smartphone. We are starting with Windows Phone and it's a new way of seeing your portfolio as it's not on computer."

Aided by hardware

HedgeGuard has taken advantage of new developments in hardware as well as software. There have been three big developments in the hardware industry lately, all of which have helped it in its evolution.

1. The introduction of SSD, the latest hard-drive technology.

2. Enormous progress in cheaply available random access memory or RAM. This is not the memory held on the hard drive but the other kind of data storage, which allows data to be accessed directly by the program. Up until last year, only 16-24 gigabytes of RAM were available cheaply or 'democratically' on one computer. Now that figure has leapt to 128 per computer. Warde noted: "The big companies bought data centres with big servers and now they're stuck with them. We rent servers and thereby get round that problem of pre-programmed obsolescence. We could change all our servers in one day, shifting all our intelligence from one to another. Our cloud is a private cloud within a data centre."

3. Fast Internet connections.

Normal limitations are inevitable

One problem that plagues ordinary computer users in public places such as tube stations or outdoor areas is the need for passwords or 'keys'. This is still unavoidable with the Hedgeguard platform, as with everything else. Warde explained: "On the beach you do need keys but you don't need your computer. You are going to have a different interface. If you don't have a connection on the tube, you won't have access to your cloud. You need two things: (i) professional communications in your office and (ii) a decent Internet connection outside. 

The colloquial cloud and the real cloud

"The cloud is nothing but a data-hunter. On your server you can have data or software running intelligence. Most providers today are only selling data-hosting and calling it 'the cloud'. You can run intelligence on the server and deliver it to the client's device within a client-rich application and not a web application. That is the use of the real cloud.

"This platform is the first platform to do this in the financial services industry for the purpose of running a front-to-back portfolio management system. This industry is the most complex of all in terms of intelligence. In customer relations management or CRM, you already have it but these systems are really easy. There is no real-time calculation."

The platform has been 18 months in the preparation and will have taken up about 24 months in all when the tests - being held now - are over in Q3 or Q4 of 2014. The compliance specialist who works with Hedgeguard is Franck Lesage.

A lowering of fees

The new platform seems to represent one more bit of downward pressure on fees in the advice and portfolio management sector - a trend that has become inexorable in the face of the Retail Distribution Review or RDR. CM asked Warde how many basis points it will cost the customer to use. He replied that the final figure will be influenced by, but not entirely dependent upon, the amount of assets under management in the paying fund. Economies of scale, in other words, will apply.

"It's user-based pricing really. We have a floor of £2,000 a month for all users and we cannot go below that. If your fund is managing £10 million, it would be paying £24,000 and that would be 24 bps. If you are managing £50 million, it would be 5bps. Even when our fees are most expensive, we are offering about half the prices of our competitors." 

Why the financial sector does not dominate banking IT 

The competitiveness in fees is not, however, a function of RDR but of new technology in this case. Warde recollected that he had not paid a penny to anyone while he was developing the platform; instead, he built the whole thing from scratch, first by himself in his own time and then with the help of a small team, in the way that new software is so often developed.

Warde also drew comfort from the fact that his platform was a rare example of software being developed in the financial services industry rather than being bought in from outside. He told CM that every big bank was spending $1 billion on technology every year and that this was wasteful: "There are no inventions coming up from this (financial services) industry. We could rival Silicon Valley if we wanted to. The financial industry is spending money in the wrong way!"