In 1993 Nigel Kneafsey established a technology company that specialised in providing services to financial institutions. Options Technology was at the forefront of hedge fund technology services as the industry evolved during the end of the last decade, and since 2001 Options has pioneered a unique approach to infrastructure solutions. It now services over 80 hedge funds and other financial institutions, with an alternative investments client base that continues to grow.
The firm’s premise is the offering of cost-effective outsourced solutions that employ trading technology infrastructure as a service, allowing fund managers to get on with the business of managing money. It seems to be an approach that is crucially winning favour with institutional investors too. “The alternative is for the fund manager to incur the costs and risks associated with building the infrastructure themselves, and hiring the many and diverse people required to look after it,” says Kneafsey.
Options’ core offering is based upon an international platform known as the PIPE, comprising four products: Core, Expand, Velocity and Accelerate, each designed to meet the differing technology challenges faced by hedge funds.
Core is intended for the fund manager seeking a robust IT service that includes all the different types of business technology solutions that money managers, including hedge funds, require for their operations, such as email, file & print, internet access, telephony and disaster recovery. These services are provided from a centralised platform requiring little or no on-site infrastructure or IT staffing at the client site.
Expand is a solution for a fund manager’s front, middle and back office system requirements, allowing a client’s existing infrastructure to be rapidly extended and improved to service new strategies, markets and growth. The Expand infrastructure includes fast data storage arrays and 24/7 management by experienced IT personnel at Options’ various secure sites around the world.
Velocity is tailored specifically for the high-frequency stat arb traders who are seeking to integrate market data into their systems as closely as possible to their respective market(s), to be able to react with a minimum of latency. It is supported by the considerable investment Options has been making in its direct exchange links, high throughput market data platforms and multiple direct broker links.
Finally, for those who have existing infrastructure but who also require low latency market data, Accelerate provides a ready solution to rapidly access data in local and remote markets.
It is important to realise that the fund’s COO still makes the calls on which software the fund will be using, but is able to engage the services of an expert team of IT personnel without the need to make dedicated hires, and to know he has the additional support and disaster recovery facilities that would ensure peace of mind for his investors. “We have enterprise quality servers and support infrastructure already in place globally,” Kneafsey says. “The client has the flexibility to simply select the desired applications to run on the PIPE platform, being third-party or in-house, and can access and control those applications from their own sites.”
Solutions like the one on offer from Options Technology are becoming increasingly popular as hedge fund investors shine more light on the technology hedge funds are using. Modern due diligence efforts are drilling down into the individual software applications being used, the procedures surrounding them, and how they are hosted and backed up. Investing clients are asking more questions about disaster recovery and data security. According to Kneafsey: “They are forcing funds to re-examine their technology choices.”
Importantly, Options Technology has won significant recognition in the investor community. “We often work with due diligence teams, and we’re now finding that the institutional investors have performed due diligence on the PIPE platform before,” the firm’s founder explains. “It is helpful for fund managers to be able to satisfy due diligence requirements quickly on the basis of a proven technology platform.”
Not just for start-ups
The Options Technology solution is not just designed for the start-up. Kneafsey confesses this was where he initially expected most of the interest to come from, as his firm can help fund managers to get established quickly and more cost-effectively than the cumbersome process of acquiring sophisticated infrastructure for internal usage. However, the experience in practice has been that larger funds with ageing legacy systems see the benefits of avoiding an otherwise expensive process of entirely upgrading their existing infrastructure. This has produced significant ongoing cost savings as well as performance improvements for a number of larger entities.
The Core solution allows the fund manager to operate without any servers or other IT infrastructure on-site. Everything is remotely hosted via the pairs of data centres that Options Technology maintains in each region. The speed at which Core and other services can be provisioned for a client is important (just a few days) since speed and ease of transition can be crucial in ensuring minimum disruption to clients’ businesses. Options normally installs redundant private circuit connectivity, but also allows managers to access the platform using VPNs both for initial testing and for ongoing remote access.
The savings in terms of space should not be underestimated either. Some larger funds are already hosting substantial server racks internally and looking at buying in yet more, but this can be costly in terms of the office space and power demands such impressive arrays require. Also, some firms would prefer to retain existing office space in, say, London’s West End, without having to move to accommodate expanding IT requirements.
“We see firms making significant investments in the latest technologies, only to find that they are unable to house them, or that they have to spread them across a data centre at great cost to get the required power or cooling,” Kneafsey says. “This creates management issues and costs in utilising these modern technologies and erodes some of the benefits offered by these technologies.”
Options Technology’s purpose-built 250 rack data centre in London is an example of the type of infrastructure required to support the technologies used on the PIPE platform. The facility was built to tackle the demands of advanced system designs, such as the high power and cooling densities required, as well as to provide the highest levels of intra-datacentre resilience and redundancy. This new data centre, which opened in January, is equipped with close-coupled cooling systems that allows for technology to be located in cabinets with power and cooling densities of up to 30kW per cabinet.
Hedge funds and the data latency conundrum
Big money and intense competition in the stat arb space is leading these high volume managers to focus on the latency that still exists between their algorithms and the markets they trade. The Velocity product is designed to help stat arb players speed up the interface between their programs, the exchanges, and the executing brokers.
Kneafsey himself is aware that the demands being placed on these funds are leading to unprecedented numbers of transactions, and the requirement to behave with a maximum level of intra-day flexibility across a variety of markets.
“Hedge funds’ IT demands are changing rapidly, especially in the stat arb space,” observes Kneafsey. “There is increasing emphasis on reducing latency and increasing volume. Funds are involved in many diverse markets now, and we have seen the arrival of a 24/7 trading environment.”
Options Technology already offers connectivity to approximately 30 exchanges, including all of the cash and derivative markets in Asia, Europe, and North America. Trading a new market can be much less time consuming, complex and expensive when using a fully managed service, and it is this, together with the performance available on the Velocity network, that are big selling factors for the firm’s Velocity offering for stat arb managers, particularly as the number of markets on the menu is constantly growing.
The currently high levels of market volatility have further increased the already high demand for low latency trading solutions. Not only do Options’ solutions represent a more cost effective way of tackling complex IT issues (they are based on a monthly subscription fee that allows COOs to plan a smoother infrastructure spending budget, rather than the usually lumpy IT spend that can otherwise face fund managers),but more managers have been turning to them in the wake of the Lehmans failure.
As Kneafsey explains, Lehmans used the Wombat suite of feed handlers and data feeds, and Options Technology was one of the only independent providers offering Wombat. “A lot of their clients migrated over, and it only took us a few days to get them up and running,” he says. Options is prime broker neutral, but works closely with clients’ brokers both during and after the setup phase and, therefore, has long established relationships with key brokers in each region. Options focuses on making sure the data feed reaches the trading programs as quickly as technically possible.
“Ultimately, it’s about providing fund mangers with a high degree of reliability and performance,” says Kneafsey. “Stat arb funds, in particular, cannot tolerate latency or down time. They require a lot of investment in infrastructure to remove these risks. Options offers a more robust, better performing, and cost-effective alternative to that.”
He appreciates the global nature of his clients too and ensures that, alongside the presence of regional data centres, Options also has offices and support staff on the ground in the major financial centres. Like other service providers, Options recognises that it needs to move with its client base, and these funds are becoming far more global in scope and appetite than they were five years ago. More funds are making acquisitions in Asia, for example, or setting up offices there, and they don’t want to compromise on their infrastructure and connectivity arrangements as part of expanding to a new region.
“Singapore has been a recent growth area for us,” says Kneafsey. “The regulatory environment is becoming increasingly attractive for hedge fund managers. The PIPE platform in Singapore has allowed us to provide the same enterprise level services to both new funds and international funds expanding to this market, for example”.
Conclusion
IT infrastructure, perhaps once something of an afterthought for start-ups, and indeed the COOs of large funds, is now increasingly coming under the microscope. The robustness and stability of the technology foundations underpinning fund management businesses is key to risk reduction as well as the ability to respond to business opportunities as they arise. It is already noticeable that leading European and US hedge funds have become constrained by the technology choices made in the past and the costs of servicing those investments.
The Options PIPE, and the service packages available from the platform, provide an innovative approach solution to these issues with the prospect of high quality technology combined with cost reductions.
The firm’s premise is the offering of cost-effective outsourced solutions that employ trading technology infrastructure as a service, allowing fund managers to get on with the business of managing money. It seems to be an approach that is crucially winning favour with institutional investors too. “The alternative is for the fund manager to incur the costs and risks associated with building the infrastructure themselves, and hiring the many and diverse people required to look after it,” says Kneafsey.
Options’ core offering is based upon an international platform known as the PIPE, comprising four products: Core, Expand, Velocity and Accelerate, each designed to meet the differing technology challenges faced by hedge funds.
Core is intended for the fund manager seeking a robust IT service that includes all the different types of business technology solutions that money managers, including hedge funds, require for their operations, such as email, file & print, internet access, telephony and disaster recovery. These services are provided from a centralised platform requiring little or no on-site infrastructure or IT staffing at the client site.
Expand is a solution for a fund manager’s front, middle and back office system requirements, allowing a client’s existing infrastructure to be rapidly extended and improved to service new strategies, markets and growth. The Expand infrastructure includes fast data storage arrays and 24/7 management by experienced IT personnel at Options’ various secure sites around the world.
Velocity is tailored specifically for the high-frequency stat arb traders who are seeking to integrate market data into their systems as closely as possible to their respective market(s), to be able to react with a minimum of latency. It is supported by the considerable investment Options has been making in its direct exchange links, high throughput market data platforms and multiple direct broker links.
Finally, for those who have existing infrastructure but who also require low latency market data, Accelerate provides a ready solution to rapidly access data in local and remote markets.
It is important to realise that the fund’s COO still makes the calls on which software the fund will be using, but is able to engage the services of an expert team of IT personnel without the need to make dedicated hires, and to know he has the additional support and disaster recovery facilities that would ensure peace of mind for his investors. “We have enterprise quality servers and support infrastructure already in place globally,” Kneafsey says. “The client has the flexibility to simply select the desired applications to run on the PIPE platform, being third-party or in-house, and can access and control those applications from their own sites.”
Solutions like the one on offer from Options Technology are becoming increasingly popular as hedge fund investors shine more light on the technology hedge funds are using. Modern due diligence efforts are drilling down into the individual software applications being used, the procedures surrounding them, and how they are hosted and backed up. Investing clients are asking more questions about disaster recovery and data security. According to Kneafsey: “They are forcing funds to re-examine their technology choices.”
Importantly, Options Technology has won significant recognition in the investor community. “We often work with due diligence teams, and we’re now finding that the institutional investors have performed due diligence on the PIPE platform before,” the firm’s founder explains. “It is helpful for fund managers to be able to satisfy due diligence requirements quickly on the basis of a proven technology platform.”
Not just for start-ups
The Options Technology solution is not just designed for the start-up. Kneafsey confesses this was where he initially expected most of the interest to come from, as his firm can help fund managers to get established quickly and more cost-effectively than the cumbersome process of acquiring sophisticated infrastructure for internal usage. However, the experience in practice has been that larger funds with ageing legacy systems see the benefits of avoiding an otherwise expensive process of entirely upgrading their existing infrastructure. This has produced significant ongoing cost savings as well as performance improvements for a number of larger entities.
The Core solution allows the fund manager to operate without any servers or other IT infrastructure on-site. Everything is remotely hosted via the pairs of data centres that Options Technology maintains in each region. The speed at which Core and other services can be provisioned for a client is important (just a few days) since speed and ease of transition can be crucial in ensuring minimum disruption to clients’ businesses. Options normally installs redundant private circuit connectivity, but also allows managers to access the platform using VPNs both for initial testing and for ongoing remote access.
The savings in terms of space should not be underestimated either. Some larger funds are already hosting substantial server racks internally and looking at buying in yet more, but this can be costly in terms of the office space and power demands such impressive arrays require. Also, some firms would prefer to retain existing office space in, say, London’s West End, without having to move to accommodate expanding IT requirements.
“We see firms making significant investments in the latest technologies, only to find that they are unable to house them, or that they have to spread them across a data centre at great cost to get the required power or cooling,” Kneafsey says. “This creates management issues and costs in utilising these modern technologies and erodes some of the benefits offered by these technologies.”
Options Technology’s purpose-built 250 rack data centre in London is an example of the type of infrastructure required to support the technologies used on the PIPE platform. The facility was built to tackle the demands of advanced system designs, such as the high power and cooling densities required, as well as to provide the highest levels of intra-datacentre resilience and redundancy. This new data centre, which opened in January, is equipped with close-coupled cooling systems that allows for technology to be located in cabinets with power and cooling densities of up to 30kW per cabinet.
Hedge funds and the data latency conundrum
Big money and intense competition in the stat arb space is leading these high volume managers to focus on the latency that still exists between their algorithms and the markets they trade. The Velocity product is designed to help stat arb players speed up the interface between their programs, the exchanges, and the executing brokers.
Kneafsey himself is aware that the demands being placed on these funds are leading to unprecedented numbers of transactions, and the requirement to behave with a maximum level of intra-day flexibility across a variety of markets.
“Hedge funds’ IT demands are changing rapidly, especially in the stat arb space,” observes Kneafsey. “There is increasing emphasis on reducing latency and increasing volume. Funds are involved in many diverse markets now, and we have seen the arrival of a 24/7 trading environment.”
Options Technology already offers connectivity to approximately 30 exchanges, including all of the cash and derivative markets in Asia, Europe, and North America. Trading a new market can be much less time consuming, complex and expensive when using a fully managed service, and it is this, together with the performance available on the Velocity network, that are big selling factors for the firm’s Velocity offering for stat arb managers, particularly as the number of markets on the menu is constantly growing.
The currently high levels of market volatility have further increased the already high demand for low latency trading solutions. Not only do Options’ solutions represent a more cost effective way of tackling complex IT issues (they are based on a monthly subscription fee that allows COOs to plan a smoother infrastructure spending budget, rather than the usually lumpy IT spend that can otherwise face fund managers),but more managers have been turning to them in the wake of the Lehmans failure.
As Kneafsey explains, Lehmans used the Wombat suite of feed handlers and data feeds, and Options Technology was one of the only independent providers offering Wombat. “A lot of their clients migrated over, and it only took us a few days to get them up and running,” he says. Options is prime broker neutral, but works closely with clients’ brokers both during and after the setup phase and, therefore, has long established relationships with key brokers in each region. Options focuses on making sure the data feed reaches the trading programs as quickly as technically possible.
“Ultimately, it’s about providing fund mangers with a high degree of reliability and performance,” says Kneafsey. “Stat arb funds, in particular, cannot tolerate latency or down time. They require a lot of investment in infrastructure to remove these risks. Options offers a more robust, better performing, and cost-effective alternative to that.”
He appreciates the global nature of his clients too and ensures that, alongside the presence of regional data centres, Options also has offices and support staff on the ground in the major financial centres. Like other service providers, Options recognises that it needs to move with its client base, and these funds are becoming far more global in scope and appetite than they were five years ago. More funds are making acquisitions in Asia, for example, or setting up offices there, and they don’t want to compromise on their infrastructure and connectivity arrangements as part of expanding to a new region.
“Singapore has been a recent growth area for us,” says Kneafsey. “The regulatory environment is becoming increasingly attractive for hedge fund managers. The PIPE platform in Singapore has allowed us to provide the same enterprise level services to both new funds and international funds expanding to this market, for example”.
Conclusion
IT infrastructure, perhaps once something of an afterthought for start-ups, and indeed the COOs of large funds, is now increasingly coming under the microscope. The robustness and stability of the technology foundations underpinning fund management businesses is key to risk reduction as well as the ability to respond to business opportunities as they arise. It is already noticeable that leading European and US hedge funds have become constrained by the technology choices made in the past and the costs of servicing those investments.
The Options PIPE, and the service packages available from the platform, provide an innovative approach solution to these issues with the prospect of high quality technology combined with cost reductions.
