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Saratoga Prime Services Picks Nirvana's Real-Time System

The new 'mini-prime' model demands real-time risk management and execution reports.

Saratoga Prime Brokers has chosen Nirvana Solutions’ real-time portfolio management system to deliver multi-prime technology services to its hedge funds clients.

Launched in 2008, Saratoga Prime Brokers started out focusing on the smaller hedge fund with up to $5 million in assets, but now it finds itself thrust into dealing with the $100-to-$200 million hedge funds that are splitting their assets across multiple custodians.

With the disruption and collapse of some of the larger prime brokers last year (i.e., Bear Stearns and Lehman Brothers) and other prime brokers abandoning the smaller end of the hedge fund market, Saratoga sees an opportunity to service the larger hedge funds as well.

“Given what the industry is going through, we’re excited to have Nirvana as a partner because it enables us to reach out to larger hedge funds and provide them with powerful systems,” says Lance Baraker, managing director, Saratoga Prime Services.

“Everything is T+1,” says Baraker, speaking of the current state of prime brokerage services provided to the smaller hedge funds. In an interview with Advanced Trading, Baraker explained, “Some of the hedge funds don’t have the resources out there to build systems sand their prime broker doesn’t provide them with it,” says Baraker, who co-founded the firm with his partner William Katts. Both were former equity options market-makers on the floor of the American Stock Exchange and believe in real-time risk management.

Saratoga acts as an introducing broker to some of the large prime brokers that provide the hedge funds with access to their stock loan departments. “I don’t have a P&S department. I use Goldman Sachs, I use JP Morgan and I use Interactive Broker’s department,” explains Baraker, citing the three relationships that Saratoga currently has. He plans to add another custodian relationship in 2008. “We believe in a multi-custodian model even before what happened in 2008 and this system allowed us to aggregate what is sitting at each custodian, says Baraker. Saratoga teamed up with Nirvana because with its system, a hedge fund manager “can see his custodial risk and where he stands. That’s very powerful,” says Baraker.

“No one else out there has real-time risk management. No one out there takes all the data from the EMS, puts it on a separate server and can aggregate that across multiple custodians and multiple asset classes. “I spend four-to-five days a month looking at the different custodian services out there,” says Baraker.

This is the latest win for Nirvana Solutions which has announced a series of new mini-prime brokerage clients taking its software service to provide real-time transparency to hedge funds.

“The crisis has led to the death of the single prime captive model and it’s really a requirement now that there be a multi-prime relationships which Saratoga offers," says Peter Curley, partner at Nirvana Solutions. "The other requirement is real-time system — no more T+1 reporting. It has to be real-time risk reporting and the final requirement is the whole idea of outsourced service,” said Curley in the interview. “There is desperation of the part of hedge fund managers that they can’t be in the business of technology anymore," asserted Curley. "They have to generate alpha,” said Curley. “With this crisis, it very much focused peoples’ minds on what’s important,” he said.

The trend toward multi-prime also reflects that the big custodian prime brokers can no longer make money on the lower-sub-five million dollar hedge funds. “They’ve all gone up prime market,” said Curley. “With this kind of introducing model, it’s a very different kind of prime brokerage. The economics change, and therefore the model has to change,” said Curley.

According to Curley, Nirvana provides software as a service (SaaS) with a very thin client on the desktop of the hedge fund and all the work is done on a server at vendor’s data center. It includes real-time market data and real-time execution reports. This differs from other solutions on the market in that the firm made the FIX (Financial Information Exchange) Protocol the heart of what Nirvana does, which enables it to update in real-time, execution-by-execution, he said.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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