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August 9, 2006

Straight-Through Trading

By Nina Mehta

If the buyside trading desk of the future is one largely devoid of humans, then the future has arrived at American Independence Financial Services (AIFS).

All equities trading at the small New York-based fund manager is done electronically. "We never call brokers," says Jared Goldstrom, AIFS' head trader and portfolio manager.

When Goldstrom joined AIFS in May 2005, the goal was to build a scalable technology infrastructure that would completely automate the firm's portfolio management and trading. The heart of the company's infrastructure is Upstream Technologies' portfolio management system and Advent's Axys, an accounting and record-keeping system. Goldstrom says that Upstream's optimization and risk modeling tool gives it an advantage over traditional OMS competitors.

Since Upstream is integrated with Axys, Goldstrom can upload portfolio holdings into Upstream daily. Axys also has electronic connections to the firm's custody bank and BISYS Fund Services, which does AIFS's accounting and distribution.

"I've spoken to a few mutual fund board executives about the electronic infrastructure we set up. They were blown away," Goldstrom says. "That's a testament to the slow evolution of portfolio management technology and analytics in the mutual fund industry." AIFS, a fund company formed in October 2004, was known as Arrivato Advisors until this past March. That's when it completed its acquisition of the mutual fund subsidiary of Intrust Bank, based in Wichita, Kansas. The firm then rebranded itself and now has some $550 million in assets.

Last year Arrivato became the first asset manager to license the new Dow Jones U.S. Target Date Index series. These retirement fund benchmarks measure the performance of multi-asset-class portfolios whose risk profiles become more conservative as each portfolio's target date approaches. Intrust's series of comparable funds was transferred in March to AIFS's NestEgg Dow Jones U.S. Target Date Index funds. On March 2, the day the NestEgg funds launched, Goldstrom says the desk traded about $55 million in equities in part of a morning. "We got the money from custody and accounting, ran our quantitative analysis, generated and executed the trade orders, and booked the trades. Five years ago that would have taken two weeks."

Goldstrom spends 90 percent of his time working on portfolio management, and the rest trading. About half the trading at AIFS is executed through algorithms from Credit Suisse's AES group. Goldstrom uses a half-dozen algorithms, including a customized algorithm Credit Suisse created for his desk. It executes orders as close to the opening market price as possible. Goldstrom works the other half of the firm's orders through Lava Trading. The desk has relationships with four other brokers and recently linked to Pipeline Trading.

American Indep. Financial Equity AUM: $250 million Broker List: 6 Firms Avg. Comm.: 0.8 cents/share OMS: Upstream Technologies Trade-Cost Analysis: In-House