Hedge Fund & Investment Technology
Interview: Alexei Miller, DataArt
It goes without saying that the two largest hedge-fund markets - comprising the funds
themselves plus the consultancies and technology vendors that serve the space - are in the US
and the UK. Which is why when Victor Anderson travelled to St Petersburg, Russia, and met
Alexei Miller, executive vice-president of DataArt, a hedge fund-focused technology consultancy,
he was surprised to find a burgeoning operation that has the expertise and ambition to
challenge the industry's established players
You have a number of clients in the hedge fund
space using your software but you mentioned that
you're looking at setting up strategic relationships
with technology vendors currently serving this
market. Is that correct?
"Our methodology is agile and responsive to
change, and it has several components - the
first being direct communication between
the client and the developer"
Alexei Miller, DataArt
Yes, we're looking forward to establishing technology
partnerships with off-the-shelf product vendors,
but we're being careful - we want to remain
independent so that our systems integration services
are not influenced by any particular affiliation.
Are there any specific organisations that you are
talking to at the moment?
In our case these partnerships are driven by technology
considerations rather than business ones.
We have encountered certain technologies at our
hedge-fund clients, and of course we do integrate
our software with those systems. We've already
integrated with and spoken to a number of wellknown
companies such as Sophis, Reuters and Integrated
Getting back to your clients for a moment: you
have five hedge-fund clients.Are they based in the
US or UK?
They're all based in the US, which is where most of
our hedge-fund expertise is concentrated, although
we're in the process of establishing relationships with
some UK clients.
I suppose it makes more sense to get traction in one
market at a time than to try and conquer two markets
Yes that true, especially for a company of our size.
What type of functionality have you been asked to
build software to support by your hedge-fund clients?
It varies depending on the client, but we've done a
lot of work in the CRM (customer relationship management)
space, the investor reporting space, as well
as in more mission-critical areas such as trade order
management, pricing, decision-support and risk
management. We've also done a lot of work in integrating
third-party systems ensuring that disparate
systems can talk to one another.
DataArt sees itself as a technology consultancy - in
fact you mentioned the term "consultancy" a bit earlier
- and not a technology vendor. What is the difference
in your opinion between the two,and what sets
DataArt apart from the vendors working in the
A vendor is a company that brings a specific set of
technologies and functionality to the table that they
believe, for whatever reason, will bring value to their
clients. We are a technology consultancy that mostly
speaks to clients who are interested in creating
bespoke software to support their unique processes.
We do not compete with technology vendors in
terms of readily available functionality. Technology
vendors don't like to customise their solutions for
each client, while for consultancies like us this is the
main business. In reality, the question that our clients
face is not really whether to build or buy - we don't
compete with the build option - we come into the
picture when clients have made up their minds that
they need a customised application. Then they have a
number of choices: either to hire people in-house, to
use local consultants, or to use a hybrid approach like
ours, where we use offshore resources as well.
Prior to moving into the financial services industry,
DataArt was active in the telecoms industry.How did
the company make the transition? Was it a conscious
decision to start providing software in this space,or
was it a case of reacting to client needs?
"When creating new systems, integration is
always on our mind. I am often surprised at
how poorly prepared many off-the-shelfproducts
Alexei Miller, DataArt
We've been active in a number of verticals including
telecom, life sciences, media and publishing. We continue
to serve those areas, but the financial services
industry has been our biggest growth area over the
past three years.
Yes, but was your decision to move into financial services
a conscious one?
At first we followed client demand and then made
conscious investments into this sector. We realised
that in the financial services industry we had the
opportunity to utilise our best qualities - we had
engineers in Russia with the necessary intellectual
capital and we were used to working in industries
where standards for software are very demanding.
This complements the software culture of the financial
financial services industry where you typically have to do a
lot of algorithmic work, and the tolerance for mistakes
is almost zero. So it was a natural fit for
DataArt, which involved a lot of learning and
adapting our processes to ones that are accepted in
the industry, and that came through specific experience.
Of course we are grateful to our first serious
clients for ‘educating' us - bringing us up to speed
on how hedge funds work and what they expect.
We're also doing a lot of work with hedge-fund
technology vendors, working as extensions to their
technology teams, and in that case our cultures are
very compatible because we are a technology service
provider serving technology companies. So we speak
the same language.
It doesn't take a genius to work out that the buy-side
technology market is a very competitive space. What
does DataArt offer its clients in terms of technology
and services,and where do you believe your competitive
DataArt is one of the very few offshore vendors that
has developed a structure to serve the financial services
software market. Local consultants are
extremely expensive. Most offshore outsourcers just
don't have the level of industry-specific knowledge.
In other words, the common understanding that you
can’t send work offshore - it's too slow, too risky and
people don't know how to deal with financial technology
- is changing, and we are perhaps the first
company to establish a methodology or process for
specific financial services environments.
At the same time, by doing work offshore, clients
are able to realise cost efficiencies - it's much
cheaper. But it goes beyond that; we have a pretty
large resource pool that allows us to ensure faster
times to market and faster ROIs. We've all heard
about six- or nine-month-long integration projects,
which are typical in the US and UK, but we have the
resources and methodology to shorten that time
even though we are talking about bespoke software.
So the offshore dimension is just a new offering to
an already crowded market that I think in many situations
is a viable alternative to local consultants. We
are not replacing off-the-shelf products in the market
and in certain situations we are not capable of
replacing the local consultants, yet in many situations
where cost factors and time efficiencies are important
we can add value to our clients.
One of the things that impressed me most when I visited
your St Petersburg operation was your hands-on
approach to project management and consulting.In
short,the person who closes the deal also manages
the development project and liaises with the client. Is
this one of your key differentiators?
Our approach has always been to be as direct and
transparent as possible. This is something we have
brought to the financial technology from our work
in other sectors. Our methodology is oriented
toward the fastest possible delivery while ensuring
the quality required by the industry. It is more agile
and responsive to change than traditional project
management and it has several important components
to it, the first being direct communication
between the client and the developer. Our front-line
people experienced in financial technology communicate
directly with the client, and yet they have
hands-on involvement with the development
process. We also heavily rely on technology: DataArt
has developed a web-based project-tracking system,
which brings complete visibility to the project. Using
technology, especially when working remotely, is a
What other areas of the hedge-fund space is DataArt
looking at getting involved with?
In terms of functionality we think there will be a lot
of customised work in the investor-reporting areas
driven by compliance and disclosure requirements.
Obviously a lot of work is going into STP - bearing
in mind that STP means different things to different
people. Finally, I think systems integration will
become a bigger part of our business compared with
software built from scratch.
I'd like to pick up on your systems integration point
very quickly.Surely, if you're engineering a lot of
one-offshor proprietary technology for hedge funds,
interoperability with other systems and technologies
is bound to become an issue?
When creating new systems, integration is always on
our mind. I am often surprised at how poorly prepared
many off-the-shelf-products are. We hear of
nine to 12 month-long integration projects all the
time. The base technology platforms available today,
such as .NET or J2EE help a great deal to make systems
more open, yet few vendors use them to their
full potential. For example, web services is becoming
the standard for integrating systems across many
industries, however it is not very well adapted to the
hedge-fund industry at the moment.
Do you see an increase in the number of buy-side
firms happy to outsource or possibly offshore certain
projects that typically in the past would have
been run in-house or managed by local consultants/technology firms?
Certainly, we see an increasing interest in our
resources. With the hedge-fund technology market
so hyped up, and new software products appearing
all the time, managers tend to buy a lot of technology,
often without proper due diligence or regard
to price. Off-shoring is rather exotic in this industry
at the moment and when we talk with potential
clients, we still have to deal with issues and fear factors
that belong in the past. I believe that over time
the market will calm down and start operating like a
normal business segment, similar to many other segments,
although with its own specifics. At that point
outsourcing and off-shoring will be considered as
just one of the standard business tools available to
fund managers or technology vendors.