Vertax Capital: Technology Decoupling.

The Fund Spin Off

Vertax Capital is a virtual investment startup created within Melba for experimentation and scenario analysis. We run real life scenarios on Vertax to deeply understand the technology scenarios and challenges that investment manager face. We will from time to time publish some of our findings and results of technological scenario testing.

The case of tethered technology

In this post we examine the case of an investment management firm spun out of a larger one but still dependent on technology from its parent investment manager.

In our experience there are several cases where an investment fund is spun out of a larger fund manager. Once the spun out entity has raised enough capital, their time to market is very short, to speed the process and also meet regulatory requirements they adopt and use the parent investment managers technology infrastructure at a compromise of some "fees".

While this seems logical at the time, as the firm grows as well as the strategies become more complex, the underlying technologies soon become a point of contention and blockage.

At this stage its important thoroughly review current technology landscape as well as the business model trajectory in order to make the right decision around providing a stable, smooth and scalable transition from the adopted technology to the new best fit implementation.

This is achieved by leveraging cloud services available and investing in bespoke quantitative platforms.

In our next post we will examine a particular trading strategy that is likely to be impacted by the decoupling process and ways to limit the impact.

Summary

Like any technology implementation model there are pros and cons of adopting an existing implementation.

Pros

• Deployment time is almost negligible

• Minimal Engineering staff

• Maintenance is minimal

• Operational and Capital Expenditure not directly attributable

• 
  

Cons

• No room to scale

• Business model and trading strategy are bound by the technology which cannot the changed within the firms timescale and budget.

• The cost of technology could be unproportionally inherent in any fees or fee structure between the firm and the parent investment manager.

• Changes such as software upgrades and architecture could adversely impact the firm