Technology and Trends in Managing the Cost of Capital
Finadium Research Report
Technology and Trends in Managing the Cost of Capital
Finadium
April 2011
This report is an evaluation of technology and trends in cost of capital management. We present the major regulatory and businesses considerations that will drive adoption of new processes and technology in the space, discuss four vendors that offer solutions, and present estimates of the potential market size for existing and new technology entrants.
Cost of capital management requires evaluating the range of financial activities at a bank, hedge fund, insurance company or other investment firm. At the simplest level it may represent margin management for listed derivatives, but for an increasing number of firms that trade derivatives, use leverage, short stocks and bonds and provide financing, analyzing the cost of capital can extend across multiple silos. In the emerging regulatory environment, technology is required to maintain a competitive edge.
While banks are the first major market for capital management technology, they will not be the last. The move to Basel III rules for reporting capital is sharpening the sensitivities of even the best run bank. As a result, hedge funds, mutual funds and insurance companies that depend on banks for financing and swaps trades will see higher and changing cost structures. This will lower returns for asset managers and force those firms to become more sophisticated about how to minimize their fees.
Our conclusions have been drawn from a series of conversations with hedge funds, insurance companies, banks and technology vendors, and from our own recent regulatory analyses of cost of capital mandates. Based on recent trends and expected market developments, we find that technology and operations outsourcing for managing the cost of capital will be a strong growth industry over the next three years. We are now in the early phases of adoption; this report serves to set the stage for the evolution to come.
This report is 28 pages with 7 exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ The Rationale for Cost of Capital Management
■ Regulatory and Business Considerations
– Hedge Funds and Financial Controls
■ Vendor Analysis
– Advent/Syncova
– ConvergEx Group
– Lombard Risk
– SunGard
■ Market Opportunity for Technology Vendors
– The Current Vendor Lineup: Market Share Winners
■ About the Author
■ About Finadium