Auditors exit administration
What is it about hedge fund administration -- the business of performing bookkeeping and other administrative chores for hedge funds -- that accounting firms don't like? Since the end of 2004, hedge fund auditors Eisner, of New York, and Rothstein, Kass & Co., headquartered in Roseland, New Jersey, have both sold their hedge fund administration businesses, leaving no major accounting firm in the field. Both firms continue to do audit and tax work for hedge funds and other clients.
New Yorkbased outsourcer Bisys Group bought Rothstein Kass's hedge fund administration unit in January. Not long afterward, SS&C Technologies, a Windsor, Connecticut
based provider of hedge fund accounting software and other products, bolstered its existing hedge fund administration business by buying Eisnerfast, Eisner's hedge fund accounting and administration unit, for $25.3 million.
It is difficult for an accounting firm that administers hedge funds to maintain independence as a hedge fund auditor. "We wanted to concentrate on our core business of being the premier CPA firm in the country providing auditing and tax services to hedge funds," says Rothstein Kass's Howard Altman, who is comanaging principal and head of the hedge funds group.
Buying Eisnerfast boosts SS&C's hedge fund assets under administration from $30 billion to $50 billion. "Also, [Eisnerfast's] business was built on our software," facilitating integration, says Ward McGraw, senior vice president in charge of the alternative-investments business at SS&C. Further expansion is planned. "We have considerable organic growth, and we are looking for acquisition opportunities," he notes.
HyperFeed's new Focus
In February, HyperFeed Technologies purchased Focus Technology Group, developer of SORTT, a smart, broker-neutral order-routing system that was still in beta testing. Thomas Wojciechowski, executive vice president of HyperFeed, says the company saw the acquisition as a chance to combine its high-speed data feed with an algorithmic trading platform that can be customized by the user, and to fortify its position as a provider of high-performance financial utilities for electronic trading.
SORTT scans liquidity providers for the fastest-possible execution and price improvement, according to John Margolis, Focus's president and founder. Margolis, a former index arbitrageur, was head of the Terra Nova Online unit of Terra Nova Trading when the latter launched the Archipelago Exchange online trading platform.
HyperFeed's high-quality data feed attracted Focus to the deal, Margolis says. No matter how good a platform's algorithmic trading package is, he explains, "if the data's off or slow or not pure or not perfect, you can forget everything else."
The deal takes HyperFeed a step farther down the road from its origins. "We started as a market-data company [PC Quote] that had a ticker plant," Wojciechowski says. "Now we're a technology company that has a ticker plant and supplies ticker plant software to our customers." In May the company gained the right to license Moneyline Telerate's Trading Room System software and another tool, Active8, further broadening HyperFeed's product line.
The Focus acquisition is part of a trend: Technology companies are automating much of the work done by traders. As algorithms become more sophisticated, might technology replace brokers? "I think it's really an evolving picture," Wojciechowski says. "If you're the buy side, you might look at the sell side as the middleman. And technology has shown that it has eliminated the middleman. As time goes on, technology will evolve to the point where you can teach it" to make more trading decisions.
But for now, humans know best when to trade. "We just help them to execute faster and more efficiently," Wojciechowski says. -- V.Z.