Goldman has turned into the world’s biggest Hedge fund, according to Institutional Investor’s Alpha magazine. Goldman now has over $21bn of assets under management up 88% from last year, and is managed by 50 managers. The no.2 spot goes to CT-based Bridgewater Associates who manage $20.9bn.

The survey remarks on the emergence and dominance of mega-managers whose investment decisions are based on a massive number-crunching on a significant amount of compute power. Would be interesting to know exactly what type of compute infrastructure they are running this on..

Interesting profile of the “quant” nature of the GS Alpha fund here, GS’s active alpha investing here, as well as their glossary  of terms.

A couple of us spent a couple of days this week up at the SIA Technology Management show in midtown, NYC, where the theme was "cool and competitive technologies". That said, there was the usual raft of not-so-cool product vendors promoting the same stuff they have for years except I noticed that many have changed the face of the staff promoting the products, ie, not so many technical folk, and a lot more marketing and account management staff (along with a few more models!!).

Some of the more interesting things at this year's show include the usual grid computing guys like Datasynapse and Platform, but also distributed cache and data grid/fabric folks such as Tangosol and Gigaspaces. I have seen several client projects where Gigaspaces has made some headway in Financial Services, mainly in solving performance problems in passing very large volumes of XML-based messages between various application services (the primary issue of which has been in the serialization/deserialization of java objects as they are passed between processes). Tangosol has some interesting functionality for abstracting the I/O of data from the underlying datastore.

Some of the big "horizontal" guys, such as Microsoft and Intel, were definitiely reliant on their ISV partners for demonstrating FS functionality. These guys definitely know how to over-sell concepts: we attended an Intel presentation in the Rainbow Room at Rockefeller Center, whereby they proceeded to talk about a new 64-bit chipset and how fast and energy-efficient it was. I thought the demonstration of the new chipset racing to crunch 20,000 calculations against its (near) equivalent AMD chip was just a bit contrived (but I am a cynic, anyway). Part of the "drama" was that when they pushed the respective buttons to kick off the processes, the Intel guy fumbled his keyboard, giving the AMD chip a 6 or 7 sec headstart, and the audience were then treated to a heart-pounding race as the Intel managed to catch up and pip the AMD chip to the line at a finish time of 32 secs (or so). I cannot believe Intel would EVER let its chip be beaten in a demo, so it all felt a bit staged. Related to this, a number of companies (IBM, Sungard and Gemstone/fire) then presented a long set of stories about how each of their respective servers, datacenters and applications run faster on the new chip. I think we all got it inside 3 secs, but it apparently took an hour to describe this fact in excruciating detail. On a more positive note, the drinks and food in the Rainbow Room were excellent, as were the views of NYC.

We also spoke to some of the established application vendors and it was interesting to hear the range of responses when asked if they were interested in educating some of our consultants, clients and partners in their application. In some cases, they actually refused to discuss the possibility of a relationship where they could get more client-business from Lab49. Bizarre. Would love to hear their CEO's reaction to that !!

As is common with shows, it is a bit of a vendor-fest and I would love to know what type of client traffic some of these companies get (and conversion rates to real business), versus interest from VCs, which I suspect are really the target audience for many.

A few of us were discussing what would constitute a change in requirements that would cause a development iteration (or Sprint in Scrum terminology) to be abnormally terminated, ie what would be so serious (and/or costly) that you simply could not carry on with development ? Here's a recent example (kind of) from the aerospace industry..

Airbus's new A380 is facing production difficulties which does not bode well given the relative success (or progress) of its competitor, the Boeing 787 "Dreamliner" : the 787 is made of lighter composite materials that allow higher cabin pressure and humidity, adding to passengers’ comfort, as well as providing a wider layout for more seating. Airbus has therefore tried to counter the 787's relative success by "refactoring" its existing A330 aircraft to create a new A350 (in addition to continuing the A380)

However, during development of the new A350, Airbus found out that the airlines actually want a "wider fuselage" - that would have been a nice requirement to know about at time of upgrade specification !!  This was always going to be a very expensive refactoring effort from A330 to A350 ($5bn), but not as costly as ignoring the change in requirements. Hey –what's an addition $5bn when all you have to lose is most of your market share to Boeing ?

(OK, so their development cycles are a touch more than 30 days, and they are probably pretty spec/documentation heavy, amongst other non-agile activities, but at least they listened to their customers ! )

After a number of interesting weeks and discussions,  I have found the next chapter of my career: Director, Client Engagements and Marketing at Lab49.

Since my previous posting, I had been looking into a number of potential job/career opportunities including some things in technology marketing, including agency side careers, and although this shares some of the same attributes as working for a consulting firm, I don’t think I can leave the IT/delivery side just yet.

I had also been speaking to some people who were just getting into new ventures, very much in the start-up mode. Although this is exciting and many entrepenuers have some great ideas (and even better and very compelling sales pitches), I have actually done this before. But it is very difficult to get a sense of reality when there is no solid pipeline or backing.

When I spoke to Luke and Dan at Lab49, I got a great sense of the energy, culture, passion, innovation and intellect that exists at the company. Not only have they been doing some really solid (and in some cases cool) delivery in Capital Markets (such as trading, risk mgt, pricing systems, etc), but they now have some serious backing: Corpus has aquired Lab49, with Lab49 becoming the Financial Services division of Corpus. This means that they are investing in the talent, putting in place a scalable infrastructure and are serious about their profile in the industry (they have hired Write-Image who are a great bunch of folks I have met before and are really tapped into FS/IT).

So, the role is two-fold: managing the delivery side of the business in the US in terms of delivery approach and project & risk management; and driving their marketing program as they seek to raise their profile in the industry. It certainly touches all of the things I was looking for in my previous post, and am looking forward to working with everyone at Lab49 and Write Image.

Amazon’s Mechanical Turk  has an interesting twist on AI, whereby computer tasks are farmed out to humans.

Essentially, this is a service taking advantage of the fact that computers are great at processing vast amounts of data and crunching compex algorithms, but are not so good at associative and context-based knowledge processing (for now). In this service, the computer actually requests tasks to be performed by a “server farm” of humans, where the folks performing the tasks get paid for their efforts.

Brad Paley, who is a leading expert on interaction design, gave an interesting talk on Data Visualization at Lab49 recently. Part of his talk discussed the boundaries between computer intelligence/processing and human intelligence. Although computers can indeed process data in a few milliseconds, the human brain has been programmed over millions of years to interpret, associate and comprehend concepts and contexts, and is a lot more powerful than a computer at doing so. Some of Brad’s work includes helping the NYSE re-engineer the specialists’ workstations, and the revolutionary science behind the data visualization interface allows the specialist to process up to 30 times more information that they used to be able to do with the previous system.

So, computers are awesome at doing the volume of data processing, but specialists are still needed to provide context and to drive (and control) the market.

Check this report out, discussing the state of Capital Markets in 2015. Some interesting thoughts (and ideals) in there.

Re: "…Service-Orientated Architecture (SOA) which reduce the business processes to their fundamental components and encodes open logic for use, and re-use, across the organization and with external parties." 

Based on their current state, some of the banks better start this NOW, if they are going to make it by 2015 !!

So, apparently New York City does not need the $207mm it had last year to defend itself from terrorism. Last week the Dept of Homeland Security cut NYC's budget by 40% to $124.5mm citing that "the region had no "national monuments or icons," four banking or financial firms with assets of over $8 billion, 28 chemical or hazardous material sites, as well as nearly 7,000 other possible important, high-risk targets, like hospitals or major office buildings…". The calculation was done using "risk-based funding". I would love to see that piece of analysis.

Apparently, the Empire State Building, Statue Of Liberty, Ellis Island, Chrysler Building, Metropolitan Museum, Times Square area, Grand Central Station, Brooklyn Bridge, to name a few, are neither monuments nor icons.

So, what is the big deal about NYC's skyline, again ? Utterly ridiculous. Apparently, the Brooklyn Bridge is categorized as merely a "bridge". And the Empire State Building is just an office building. Huh (??!!)

saw this NY Times article on Hedge Fund performance

Saw this interesting article in the Economist today about the prime brokerage market for hedge funds. If you can't access it online, the main points are:

Background 

• As much as $10bn is spent on prime brokers, with banks reaping up to 40% return on equity.
• Emerging market and commodity funds have been hit hard this year.

Trends

• Big banks are seeking to build out the Prime Brokerage business to forge closer relations with the Hedge Funds, including securities lending, leveraged-trade executions, cash management and even computer systems if they need it.
• Prime Brokers have been tightening their own risk management through daily mark-to-market of their exposures, especially after Long Term Capital Management's spectacular demise, Bayou Management (hedge fund / fraud) and Refco (prime brokerage arm collapsed due to alleged fraud).
• Return to Quality: Hedge Funds are seeking the best investment banks to provide credit.
• Hedge funds are growing fast, but remain lightly regulated and often shift strategies, sell stock short and hold illiquid assets. Their growing use of derivatives quietly traded away from exchanges is also testing the appetite of prime brokers to lend, because they find it hard to price the business.

Challenges For (Prime) Brokers

• Declining commissions for brokers and especially with the big clients who have the power to demand thinner margins.
• More professional fund managers know how to play banks off against each other.
• When funds get big, they need more than one prime broker, so each broker gets only a share of the business.
• Although there is more business to go round, the battle among the brokers has also picked up.
• Regulators
  • More focused on how to manage and disclose commissions, and what clients are actually paying for.
  • The “unbundling” of broking services—separating the cost of research from the cost of trading—This will free buy-side firms to trade with whomever they choose, without having to buy research.
• TECHNOLOGY - direct market access without intermediation of brokers.

(Separate but related to the technology angle: DLG has some good stuff on Hedge Fund Integration over on his blog.)

VIX recently hit a high for '06, signalling the return of some investor fear and increase in volatility. But then dropped again by the end of last week - indicating a more chilled out view of the market. Are investors confused and/or cautious at the moment ? They seemed to be buying relatively more puts than calls at the end of the week (to protect their portfolio).

The Chicago Board Options Exchange's Volatility Index (VIX) is a (single) measure of near-term implied volatility based on the S&P 500 stock index option prices. Originally introduced in 1993, it provides a measure of investors' view of the "riskiness" of the market. A decent explanation of VIX can be found here .

This "investor fear guage" allows investors to evaluate and buy portfolio protection in the form of VIX options (a relatively new product from CBOE - VIX option contract specifications can be found here.)

VIX has a couple of cousins : CBOE Nasdaq Volatility Index (VXN) which uses Nasdaq 100 index option prices; CBOE DJIA Volatility Index (VXD) and the CBOE Russell 2000 Volatility Index (RVX). You can also buy futures on the VIX, VXD and the 3-month and 12-month variances.

NOTE: the VIX itself is based on 30-days, does not include options of longer duration, does not factor in non-index options, and does not necessarily represent individual market sectors.

Still, it is an interesting index to track for the average punter.

New York Stock Exchange has agreed to buy Euronext for $10bn, creating a market with capitalization of about $20bn. Looks like the American HQ will be in New York, with offices in Paris and Amsterdam, as well as a derivatives business in London. How much will it cut the cost for users of the combined exchange ?

What's next in the consolidation of the global exchange market - LSE and NASDAQ ?

Article From Finextra, and from Marketwatch.com