GE Asset Management, a Stamford, Conn.-based financial institution with $180 billion in its coffers, recently licensed fixed-income portfolio-management, trading and compliance applications from software provider Latent Zero. The firm, which counts $109 billion of that $180 billion as fixed-income assets, decided to standardize on one system after management put three GE financial-services entities under one unit, explains GE asset management vice president Bob McCorkle.
According to McCorkle, GE Asset Management, which had $24 billion in fixed-income assets, brought the Kansas City, Mo.-based Employers Reinsurance Corporation (ERC), with $20 billion in assets, and the Richmond, Va.-based GE Financial Assurance (GEFA), managing $65 billion, under the GE Asset Management umbrella. When that happened, says McCorkle, the company found GE and ERC had Bloomberg systems running alongside an in-house system from GEFA.
To find the right system on which to standardize, while also upgrading the firm's pre-trade-compliance capabilities, McCorkle asserts that GE made use of the Six-Sigma methodology and developed scorecards for all of the vendors whose products fell in the company's price range. Based on initial results, McCorkle says GE took a long, hard look at Bloomberg, Macgregor and Charles River Development, neglecting to focus on Latent Zero because of its high price tag. But when the firm became "bogged down" in contract negotiations with the vendor it originally selected (McCorkle declines to name the initial contract winner), Latent Zero came to the table with a reduced price point.
"That rejuvenated the scoring process, so we had a bake-off between the preferred vendor and Latent Zero," says McCorkle. GE ultimately selected Latent Zero's Tesseract, Minerva and Sentinel applications.
McCorkle says GE's unique requirements included the meshing of an insurance investment model with a total rate-of-return model, adding that, "The business rules around it had to be flexible to achieve a standardized workflow." Additionally, GE wanted a strong pre-trade-compliance engine with straight-through processing capabilities, according to McCorkle.
Todd Eyler, a research manager in the capital markets division of Financial Insights, says that real-time reporting is the key to effective pre-trade compliance. "If you are relying on delayed reporting, then you are asking for problems. You need to have the right data at the point of the trade to run the compliance rules rather than seeing it the next day," he says.
In addition to its pre-trade-compliance abilities, Latent Zero's messaging technology also impressed GE's McCorkle. "Latent Zero has a virtual database that allows our London office to get the same performance as if they were in our building in Stamford," he says. "With the server, we get LAN performance globally."
When implementation is completed, GE Asset Management and its two sister entities will all work off of one database, "So we will be able to leverage efficiencies by getting all the positions and all the customers onto a single platform," says McCorkle.
GE concluded contract negotiations with Latent Zero at the end of last year and is currently in the early phases of implementation. McCorkle says he expects the first trading desk to go live in June and hopes to have the entire firm on the system by the first quarter of 2005.
McCorkle notes that he learned a valuable lesson when talks with his initial selection hit an impasse. "It's important in the negotiation to maintain a competitive environment as long as is humanly possible," he says. "Once they think they have the exclusive rights to negotiate with you, they become much more intractable."
Financial Insights' Eyler lists four vendors that offer superior fixed-income order-management systems: Latent Zero, Linedata, Charles River Development and SunGard with Decalog. "Those are four that provide deep support in terms of compliance functionality," he says.
As for advice, Eyler asserts the key is moving data out of the accounting system and closer to the front office. That way, he says, it can be used by traders in real time, even allowing them to add new issues and perform a pre-trade compliance check on the fly.