New York-London-based youDevise Limited, a software firm which offers a trading ideas platform, announced that it is planning to expand its U.S. operations, competing more directly with Bloomberg’s trading ideas network, FactSet’s AlphaNetwork, and Toronto-based First Coverage.
Trading ideas networks, which are also referred to as alpha capture networks, are platforms designed to facilitate the distribution of trading ideas to buy side recipients. The platforms are most heavily used by institutional sales to select and monitor high conviction trading recommendations. One of the pioneers of the concept was Marshall Wace, a London based hedge fund with $9 billion in AUM, which raised €1.5 billion in December for an IPO based on its TOPS (Trade Optimized Portfolio System).
Leveraging Industry Connections
youDevise got in the trading ideas game in October 2005 when it was selected by a London-based consortium of sell side firms called Trade Ideas Limited to develop the technology to power its trading ideas platform. youDevise is now promoting the technology as Trade Idea Monitor, which incorporates a server hub utility owned by the industry consortium. The industry consortium is owned by Citigroup, Credit Suisse, Merrill Lynch and Dresdner Kleinwort Wasserstein, and includes over 50 sell side participants.
youDevise also offers a platform to funds of hedge funds, where it incorporates hedge fund portfolio information and other confidential information from hedge funds and their administrators into performance measurement and accounting applications.
A recent press release from youDevise cited 3,300 sell side users of its Trade Ideas Monitor platform, up from 1,700 sell side users announced in December 2006. youDevise says it has 670 recipients of trade ideas from 70 buy-side firms on its platform, up from around 300 in December 2006. Recipients include proprietary trading desks of sell side firms which are said to be around one-third of the users of the product, so actual buy-side users are closer to 450 recipients. According to the press release, half the users are buy side analysts with the remainder split between traders and portfolio managers.
youDevise says it will be opening an office in New York later this year, bringing it in more direct competition with some of its U.S. based competitors. FactSet already competes directly in London with youDevise with its AlphaNetworks capability, which it acquired as part of its purchase of StreamVPN for £13 million in September 2005. At the time of the acquisition StreamVPN claimed 2,000 sell side users from 100 firms. Bloomberg also offers a trade ideas platform. First Coverage, a Toronto based software firm which received a $5 million in VC funding, offers trade ideas monitoring, in addition to tracking other services provided by institutional sales such as management meetings.
The youDevise press release follows:
More Than 4,000 Professionals at 150 Buy & Sell Side Firms Using Equity “Trade Ideas” to Improve Performance
Monday March 26, 7:56 am ET
LONDON and NEW YORK, NY–(MARKET WIRE)–Mar 26, 2007 — Equity trade ideas, which put analyst research into action, are becoming the new way for improving investment performance on the buy-side and for expanding commission revenues on the sell-side. Unlike traditional research, trade ideas are typically authored by sell-side institutional sales people or sales traders. The ideas feature very specific long or short recommendations for the purchase or sale of a particular stock, at a specific price and point in time, and how much money should be committed to the trade. They are sent to and used by hedge funds and proprietary trading desks, as well as traditional money managers.
Currently, more than 4,000 market participants at 80 sell- and 70 buy-side firms are employing trade ideas to drive their business, according to financial services technology firm youDevise Limited. As of February 2007, approximately 3,300 sell-side professionals are using youDevise’s Trade Idea Monitor (the TIM) to author and transmit ideas to more than 670 recipients, who are using it to track these ideas and decide which trades to execute. In turn, recipient firms are allocating up to 80% of their commission spending to sell-side firms that send them ideas. Anti-spam features enable recipients to control which brokerage firms send them ideas. About 12 months ago, when the TIM was first made generally available, there were just a few hundred users at four firms in the US and UK.
Colin Berthoud, Director of youDevise, said the growing use of trade ideas is being driven by regulatory clarity on “soft dollar” or research commission spending; new technologies, known generically as “alpha capture systems,” for composing, sending and evaluating ideas; sell-side strategies for growing commissions in the face of algorithmic systems that are driving them down; and the publicly known success of money managers that use trade ideas. Hedge fund Marshall Wace, for example, raised 1.5 billion euros ($2 billion) in a December IPO on the strength of two trade idea strategies that have achieved average annual returns since inception of more than 20%.
The TIM helps the sell-side develop and transmit ideas in a structured format so that recipients can store the ideas and use a series of analytical tools and integrated features to identify the best performing ideas and the brokers who authored them. According to the latest activity reports:
— 65% of users are based in Europe, with the balance in the US and Asia
representing the fastest growing markets.
— Recipient firms are split evenly between prop trading desks, hedge
funds and traditional asset managers. Recipients include two of the top
prop trading firms and three of the top hedge funds in the US and UK, and
four of the largest traditional asset managers in the world, each
interested in a premium service for tracking and managing trade ideas. At
these firms, about 25% of recipients are traders, 25% are portfolio
managers and 50% are buy-side research analysts.
— Among idea authors, approximately 70% are sales people, 15% sales
traders, and the rest are research analysts. The sell-side firms for whom
they work include more than 15 of the top “bulge bracket” institutional
brokerage and research firms in the world.
— The majority of ideas transmitted involve US and European based
equities, but interest in emerging market stocks is increasing rapidly. To
accommodate this trend, the TIM was recently enhanced to show exposure to a
stock’s currency, as well as the price of the stock, and allow users to see
whether currency movement or price movement most affects performance.
To facilitate expanded use, youDevise has tripled the TIM’s server capacity over the last six months. The TIM now takes advantage of multiple replicated databases, a key technological development needed to service a large number of users accessing the TIM’s databases at the same time. London-headquartered youDevise also plans to open an office in New York City this year.
About youDevise Limited
youDevise Limited (www.youDevise.com), based in London, provides web-based portfolio workstations for financial markets. The company’s leading on-demand applications provide portfolio management for liquid and illiquid assets. They include the Trade Idea Monitor (the TIM), for the high-speed communication of equity trade ideas and portfolio ideas between institutional brokers and their money manager and hedge fund clients, and the Hedge Fund Information Provider (the HIP), the first commercially available portfolio management system for funds of hedge funds. All of youDevise’s applications leverage its proprietary Information Distribution Server (IDS), which facilitates the exchange of data between different market participants.