7/25/2019 Waterstechnology de Shaw Blackstone Upend Post Trade for Alternatives Eye Broader Am Space Next

1/22015 Incisive Media Investments. All rights reserved. Used by permission. First published by Buy-Side Technology, March 2015.

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It would seem strange to introduce Arcesiumthe newtechnology company formed this week by Blackstone and DEShawby first talking about one of these firms arch rivals,Chicago-based Citadel.

When Ken Grif fins tech team announced it would begincommoditizing its execution and order management

technology around two years ago, it represented a majormarker in the space.

Until then, and still today, the traditional thinking aboutleading hedge funds and proprietary systems usually goes

in two parts: one, selling technology is expensive and it isnttheir expertise, and more importantly, two, why would theywish to give away the advantage theyve sweated for and spentreal money to achieve?

Not that it hasnt been done before, but Citadels com-moditization move was a big one. And back in New York,Blackstone and DE Shaws new independent platformrepresents yet another, perhaps even bigger, leap for buysides trampling into the tech development business, this timeon the back end with $36 billion DE Shaw providing theunderlying platform, and BAAM serving as the firstheadlining client.

Direct Trading, Special Situations

An industry source familiar with the tie-up says it goes backa number of years, beginning with DE Shaws 2010-2012Financial Operations Roadmap study.

The idea was to first map inefficient processes at a granu-lar level, the source says, before re-engineering them so

as to be purely exceptions-based. After several years work,the firmalready one of the best development shops onthe Streetknew it had something good. Indeed, somethingsellable.

Brian Gavin, BAAMs senior managing director and COO,

tells Buy-SideTechnology thatthis is whenBlackstonefacinga similar problemfor its preeminent

$64 billion BAAMfund-of-fundsarmbecameinvolved.

Identifying acomprehensivetechnology solution that can be tailored to efficiently handlethe complexity of BAAMs multi-billion dollar direct tradingand special situations business had been a key strategicinitiative for BAAM, he says.

We conducted extensive diligence on existing technologysolutions in the marketplace, and when approached by DEShaw regarding the externalization of their technology, BAAMincluded what is now known as Arcesium as a potential

solution. We found Arcesiums technology to be flexible andcapable of handling a wide range of asset classes, counter-parties, and complex fund structures. Also, the servicingcomponent staffed by Arcesiums experienced staff ensurescontinuity in the application and use of the system.

Unique Structures

The resulting platformcovering the full trade lifecycle both

for asset classes that are difficult to deal with and traditionallong-only strategiesis built with modular API-basedtechnology, allowing BAAM and future clients to plug and playwith different components as desired.

The first step with any new clients [therefore] is carefullyunderstanding their existing environment and integrating

DE Shaw, Blackstone Upend Post-Trade for Alternatives, Eye Broader

AM Space NextMajor hedge funds adding a new revenue stream byopening up their proprietary technology to the outsideworld isnt new, but its always notable. This is especiallythe case with Arcesium, the Blackstone Alternative

Asset Management-DE Shaw tie-up. Tim BourgaizeMurray explains.

Gaurav Suri - CEO Arcesium

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7/25/2019 Waterstechnology de Shaw Blackstone Upend Post Trade for Alternatives Eye Broader Am Space Next

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2015 Incisive Media Investments. All rights reserved. Used by permission. First published by Buy-Side Technology, March 2015.

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Arcesiums system with the front-office systems they may usefor trading and with those of their fund administrator, says

Gaurav Suri, Arcesiums new CEO and chief technologist atDE Shaw.

Above all, though, Gavin says Blackstone was interestedin a single source of truth, which, according to the industrysource, is offered in both as-on and as-of views through thenew system.

By that, we meana single reference and

security database usedfor the entire platform,he says. There is no needto reconcile data betweenmultiple systems to ensurethat they are all accurate.BAAM felt that Arcesiumwas best equipped to

handle all of the assetclasses we will trade andto be able to support ourunique account and fundstructuring. DE Shaw hasdeveloped this technologyover many years and theplatform has been criticalin supporting the complexity and growth of their business.

Arcesiums security master and portfolio data warehouseintegrate well with external systems and a wide range ofdata providers, Gavin argues, and the system can updatethe security master and a users order management system(OMS) in an automated fashion along with offering automatedchecks to ensure completeness for each security. Both the

data warehouse and security master offer tremendous flex-ibility in reporting and creating custom tags for our securitiesand data, Gavin explains.

Broadening Out

While the natural target for the new platform is alternativeinvestment houses like Blackstone, the idea is to eventuallycast a larger net, including conventional asset managers,

hedge funds, and administrators. This, among other reasons,is why BAAM makes a useful pilot partner, according to Gavin.

Given BAAMs position as the largest provider of hedgefund solutions, we can offer insight into functionality that

other funds will findvaluable based on our

understanding of theirneeds and the needsof their investors, hesays. Being Arcesiumsfirst client, BAAM willhave the ability to workwith Arcesium to offera customized solutionto best fit our workflow

and reporting needs,and we feel that mostof these solutions willbenefit other Arcesiumclients down the road.

For now, this is a dealSuri and his team at DE

Shaw can relish. After more than two decades of quantitativeand technology leadership on the buy side, the firm can addone more new line to its resume.

Weve long believed that the proprietary back- and middle-office systems weve developed over the firms 25-year historyare best-in-class, Suri says. Arcesium is an opportunityfor the firm to offer those systems, and the highly-qualifiedpersonnel who support and implement them, to a widermarketplace. n

Tim Bourgaize Murray

THE BOTTOM LINE

The launch of Arcesium, a collaborationcombining DE Shaws post-trade platformwith BAAMs funds and expertise, has thepotential to upend the already highly-saturated middle-office space on thebuy side

Among the points of emphasis for thepartners in the project were modular, API-based componentry; a focus on unique andcomplex fund and accounting structures;and bulked-up technology and supportpersonnel, which is projected to grow to400 in the new companys first year.

BAAM felt that Arcesium was best equipped tohandle all of the asset classes we will trade andto be able to support our unique account andfund structuring. DE Shaw has developed thistechnology over many years and the platformhas been critical in supporting the complexityand growth of their business. - Brian Gavin,COO at BAAM

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