iSophis ASP solution faces strong competition

A new portfolio and risk management offering from tech vendor Sophis and JP Morgan will target small and medium-sized hedge funds.

Software supplier Sophis, in conjunction with JP Morgan, has launched its first ASP offering, but it faces tough competition from vendors such as Calypso, Imagine and Riskmetrics.

iSophis will allow hedge funds to manage their portfolios across multiple prime brokers, enabling them to obtain a consolidated view of their positions, run risk calculations and generate reports. The product currently offers end-of-day reporting, but will soon provide intraday and ultimately real-time reporting.

It is initially being offered in North America and will be rolled out to other regions, including Asia, with the timing dependent on the level of interest, says Pascal Xatart, Paris-based chief executive of Sophis.

Two US-based hedge funds are already using iSophis, and the French vendor is in discussions with five other US hedge funds, which it expects to sign up by the end of the year. Sophis is not yet in discussions with any firms in Asia, says Xatart, but he expects a high level of interest from other geographies, including Asia, where the iSophis model is "very attractive -- simple and powerful".

Sophis's existing portfolio and risk management products -- Value for the buy-side and Risque for the sell-side -- are both server-installed on-site, while iSophis is an ASP solution, meaning it is web-hosted.

As a result, small- and medium-sized hedge funds are a clear target market for iSophis, says Xatart. "They need to have access to this sort of sophisticated technology for risk management and reporting purposes, but do not necessarily have the resources to support an in-house implementation of a solution such as Sophis Value."

iSophis may also be appropriate for larger hedge funds that have an existing solution that is unable to cope with new requirements such as managing portfolios across multiple prime brokers, says Xatart.

Sophis's launch of a hosted solution would appear to be not before time. "It is not surprising that Sophis has decided to launch an ASP solution, as most of its competitors -- such as Imagine, Calypso and Beauchamp -- have had one for a number of years," says Michael Langton, Hong Kong-based sales director at QRMO, which provides risk management services to hedge funds.

"Also, the traditional Sophis Value offering may be too expensive for most Asian buy-side hedge funds below $30 million in AUM," he adds. "There have been a number of such funds launched so far in 2009, and this trend is expected to continue into 2010. So it makes sense to offer ASP solutions in this environment in order to offer a cost-effective solution to new Asian funds with limited capital."

However, Xatart says the relatively higher cost of Sophis Value was "not necessarily" the reason for developing an ASP offering. iSophis was developed to meet a different set of market requirements. "Many funds want a very light internal IT infrastructure and prefer to have access to hosted solutions," he says. "In other cases, some funds only require access to a limited range of functionality, so a full implementation of Value would be overkill for them."

Langton notes that other vendors have partnerships with banks similar to Sophis's with JP Morgan. New York-based Imagine, with which QRMO is a business partner, has a strategic relationship with Credit Suisse, which offers the system as an option to hedge fund clients. In addition, Credit Suisse offers Paladyne through its Advanced Prime platform. Another example is Citi's OpenPrime offering, which is based on Linedata's Beauchamp architecture.

But iSophis does have the benefit of being broker-neutral. "Many of the larger prime brokers offer a proprietary system as part of their service, but [iSophis] seems to be differentiated by being able to manage across multiple prime brokers," says Peter Douglas, principal at hedge fund research firm GFIA in Singapore. "Most hedge funds' internal systems will do this, but then the hedge fund needs to buy/develop its own system."

From a prime brokerage perspective, iSophis is exclusively offered by JP Morgan, but Sophis is developing other potential distribution channels, from both a geographical and market-segment standpoint, such as through family offices.

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