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SaaS a ’No-Brainer’ for Small Wall Street Firms

Small hedge funds and private firms have turned to software as a service to handle non-core chores such as customer relationship management, e-mail and even managing deal flow.

Across Wall Street IT organizations are being asked to do more with less, and increasingly firms are turning to software as a service, or SaaS, to cut overhead. In particular, SaaS -- hosted software that is accessed over the Web -- has become common at small Wall Street firms that have fewer IT resources.

"It was a no-brainer," says John Quinlan, cohead of sales and operations at Kelvingrove Partners, of the firm's decision to leverage SaaS. Kelvingrove, a long/short equity technology fund, began operations in June 2008 but officially launched on Jan. 5, 2009.

The Naples, Fla.-based fund uses SaaS for non-core applications, such as e-mail and customer relationship management, according to Quinlan, who points out that the firm's trading systems are entirely in-house. When first looking at Salesforce's CRM application, Quinlan recalls, he immediately thought, "This is great. I don't have to think about IT, whether my server is up or down, hiring an IT person and keeping that person busy, where my servers are going to go, how I'm going to keep them cool, and whether or not I have the most cutting-edge technology. I can let someone else do that for me." While he declines to disclose the subscription fee, Quinlan notes that it is inexpensive.

Salesforce in its standard form, however, was not specific enough to the hedge fund business, Quinlan adds, so he turned to a customized version of the offering from SaaS consulting firm Navatar Group.

Kelvingrove also relies on another SaaS provider, Google Apps, for its e-mail. "So far it's worked out well -- our e-mail has never been down," Quinlan reports. "Sometimes it's a little slow because it uses IMAP [Internet Message Access Protocol], which requires more authentication than POP3 and sometimes kicks you out," he acknowledges. "But I don't mind a little extra authentication. In fact I prefer it." He notes that he would also consider SaaS for human resources applications from a well-known provider, such as ADP.

Quinlan says that his only negative experience with SaaS occurred when he tried an online version of Intuit's QuickBooks accounting software. "It's a little annoying," he laments, pointing to sluggish response times. While conceding that a bigger pipeline would support the speed that would make hosted QuickBooks more useful, he adds, "I'd rather have QuickBooks on a desktop. [Hosted QuickBooks] is useful if you're traveling and you want to cut a check quickly or reconcile your books, but a lot of that I can do through a bank."

Using SaaS to Do More With Less

Venture investor firm MPM Capital, based in Boston and San Francisco, uses hosted e-mail filtering from Postini, a wholly owned subsidiary of Google. The investment firm, which has a staff of 50, began using the service six years ago, before Google bought Postini, reports Bob Clarke, MPM's network administrator. The software detects and quarantines viruses and spam, he relates, and e-mail is "washed" by the software before it ever reaches MPM Capital's servers.

According to Clarke, MPM receives about 155,000 messages a month, 60 percent of which are quarantined. Like most e-mail-filtering tools, Postini lets users review spam-flagged e-mails and white list any valid messages.

"For me, it's one less device to manage," says Clarke, whose IT department has only two employees. "It's one less thing to worry about. It keeps spam and viruses from hitting our network." Clarke adds that the only glitch to the service that he has experienced is a slight delay when a server goes down and e-mails are spooled over to another server.

The price — $12 per user per year — is also manageable. "Up-front costs for software would be more," Clarke says. "I think of this as a way of doing more with less."

Like Kelvingrove Partners' Quinlan, Eric Hargrove, marketing associate at Los Angeles-based private equity firm GKM Newport, examined Salesforce's CRM application but decided it was too generic for his firm. Hargrove also chose a Navatar-customized version of Salesforce for private equity. "Although is an industry standard for CRM, out of the box it doesn't work well for private equity," he contends.

For instance, Hargrove says, Salesforce didn't offer an easy way to track investors, investor documents, funds, fundraising, capital calls, distributions and reports alongside contacts and deal flow. "It would have cost us a lot more money in development time to develop something that would be suitable just for us," he notes.

Today staff at GKM Newport, which has 11 employees, manage deal flow, marketing and sales through the hosted Navatar solution rather than the Excel spreadsheets they used to use. "Although I'm a big fan of Excel, it's not an easy system when you have multiple people in different states and you're trying to track lots of different numbers and percentages," Hargrove says. The hosted application "really made my life a lot easier."

In fact GKM Newport's decision to use SaaS instead of buying software was primarily based on ease of use as well as the lighter cost of buying a prebuilt solution rather than building one. And, "It takes the worry and frustration of IT off the hands of people that should actually be working with clients," adds Hargrove.

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