CDC Investment Management, a subsidiary of Caisse des Depots et Consignations, has teamed up with NetRisk enterprise risk management company to develop Crystal Box, an Internet-based reporting and analysis tool. CDC is currently beta testing Crystal Box internally, comparing reports and testing for accuracy before making it available to clients during the first quarter of 2000. Crystal Box will enable CDC's more than 100 clients to log onto the site and view the same risk reports that portfolio managers have access to.
"It's absolutely critical for us as a company in this type of marketplace to be transparent to the investor," says Blu Putnam, president, CDC Investment Management, which manages about $4.5 billion in hedge funds. "Our institutional investors-pension funds, banks, insurance companies-need to know what we're doing with their money and how we're managing the risk and using instruments to actually reduce risk." Putnam says CDC joined up with NetRisk over a year ago to define the needs they were looking for in a new system.
"We wanted a state-of-the-art system, not just to report performance to our clients but to slice and dice risk in every which way," adds Putnam. The wants and needs of CDC and about one million dollars in development costs, including internal system upgrades to prepare the firm, lead to the release of Crystal Box. "We were joint developers in the sense that it's built to our specifications but with an eye toward being a platform that is easy to customize for any asset manager," says Putnam.
The Crystal Box product, aptly named, will provide a more transparent view of risk for investors in an area of the market where prices and fund tracking is not as simple as in mutual funds, for instance, which can be followed in daily papers. The product features information on credit risk, value-at-risk, stress testing and portfolio combinations. "You can look at two or three of our products combined because if you combine uncorrelated products in a fund of funds or in a portfolio you could have even less risk," notes Putnam.
Putnam estimates that at least one third of CDC's clients will log on to Crystal Box to view and/or retrieve the risk information. "That third is going to use it so much that they're going to make the whole investment worth while. They'll reduce our clients services cost, they'll be seeing data on other funds we have that they're not invested in, and they're going to see some things they like and maybe we'll make some sales," says Putnam.
Specifically, the Crystal Box automation will streamline CDC's operation by replacing one client service person, one marketing support person and some support needs of the risk management team, notes Putnam. "This doesn't mean we're going to lay anybody off, it just means that because we're a growing company that's money we don't have to spend on personnel in 2000 and 2001. And that's way in excess of the maintenance cost, so it's a pretty big win for us on an ongoing cost saving basis," says Putnam, adding that it also reduces operational mistakes by providing a consistent format for bringing data together from various internally-developed systems and different funds.
NetRisk has also made the beta version available for download to authorized clients and licenses the product for around $150,000 per year or more, depending on the number of clients and the complexity of modules, says Putnam.