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Ready for Risk Management

Buy-side firm teams up with vendor to implement and promote compliance technology.

Equinox Capital Management Ltd, a buy-side firm with a proprietary hedge-fund as well as investments in others, recently implemented Misys Eagleye, a .NET-based compliance solution to minimize trading risks. Equinox is using the system to manage "customer compliance," such as asset allocation, exposure and credit ratings.

The firm, which specializes in institutional and high-net-worth clients in Europe, the United States and the Middle-East, chose Eagleye because of its ability to provide pre- and post-trade compliance, a challenge that Equinox had not formally addressed since its inception in 1997, says Philip Brown, head of IT at the firm. He says the firm has decided to implement the system now because, "If we can report a little more quickly and be more transparent, it can only enhance our relationship with our investors." Enhancing the level of trust, he notes, is increasingly important in this tough market.

Brown adds that, despite the possible benefits of risk-management technology, the addition of the Eagleye technology was more of an "evolution" than a formal search for a compliance solution.

Brown says he first noticed Eagleye while examining products for a separate strategic division of the firm's parent company, the Equinox group.

"I thought that the product would also be suitable for the hedge fund sector," he explains, differing from the large asset manager that Eagleye had originally targeted. "We got involved as a BETA tester to verify that the product would actually work in our arena, liked the product and decided we'd like to become a customer."

Brown explains that by BETA testing the product and helping Misys to customize it to suit his hedge fund, Equinox provided the company with a whole new market---other hedge fund clients. As a result, a unique relationship was formed which allows Equinox to share profits from any new hedge fund clients that buy the product.

"We've formed a joint venture," he says. "We've proved that their product works for hedge funds. We have agreed on a split of commissions on each hedge fund that signs on, so we're hoping for a quick return on our investment in this technology."

Rob Hegarty, vice president of securities and investments at Mass-based TowerGroup, says that while the practice of joint ventures between asset managers and technology firms is unusual, it is not unheard of in the alternative investment world. "Hedge funds tend to find creative ways to generate revenue that other firms do not," he explains.

While Equinox explored other products including Beauchamp Financial Technology, a previous technology provider for the firm, Brown says that Eagleye offered the greatest pre- and post-trade compliance for the firm's specific trading goals, which include attracting more institutional investors who are interested in hedge funds that can demonstrate the ability to manage compliance risk.

Brown says that Equinox was also drawn to Eagleye's .NET base, enabling the firm to integrate to a single Microsoft SQL Server 2000 database. This aspect allowed the firm to cut costs on administrating and supporting Unix and Oracle legacy systems, as well as added a level of mobility for messaging.

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