One large custodian bank reported receiving 10,000 or more faxes from investment managers on the last two days of the month, making a mockery of the industry’s efforts over the years to become entirely electronic, standards-based with computer-to-computer communications untouched by error-producing human hands.
In some cases, custodians have themselves to blame. Some are still trying to push proprietary workstation technology on investment managers. But the investment managers often deal with 50 or more custodians that range from leaders such as Citigroup, JPMorgan Chase and The Bank of New York to trust departments of banks in Iowa where wealthy clients have done business for years, and even to leading state banks that control pension fund business. A fund manager faced with a variety of proprietary standards has his own standard response – the fax machine – and lets banks deal with the data from there.
Many custodians would like asset managers to use their own customized systems, or enter data through a Web site, explained the vice president for operations at a Florida-based firm that didn’t want to be identified. “But if you work with 10 different custodians it is a lot easier to send a fax,” he said.
His firm recently switched from fax to sending a FTP file to Evare, which formats it into SWIFT messages to custodians.
“It has been pretty great,” he said, “a lot smoother than I thought it would be.” By eliminating the manual processing around fax communications with custodians, the firm has been able to grow assets without growing staff. Now the operations staff members know quickly if there is an error and efficiency has improved sharply, he added.
Breckenridge Capital Advisors in Boston began using Evare to collect information from custodians about client holdings and transactions on a daily basis. A subadvisor specializing in municipal bonds, Breckenridge aims to keep its clients fully invested, so it wants current information on holdings and cash positions. Managing 100 relationships with other advisors and financial institutions, it runs 2,500 separately managed accounts with 60 US-based custodians.
“Historically when we needed to reconcile an account to determine if there was additional cash we could invest, or to see if certain holdings needed to be sold, we would go to a custodian’s Web site, ask for a fax, or get an email from the custodian with the current holdings,” said Andrew Meyers, chief operation officer at Breckenridge. “It was time consuming and we were not as current as we wanted to be.”
Now Breckenridge receives 85 percent of its information from Evare – in the remaining cases the custodian banks are too small to bother setting up electronic links.
“Evare takes the feed in pretty much whatever format the bank wants to send it, then puts it into their format and sends us the files from each custodian,” said Meyers.
Taking the standard format, Breckenridge can run the data through its processing and feed the information into its internal portfolio management system.
“As a result, we can on a daily basis look for variances in custodial holdings and cash and our internal records of holding of cash so we can see where there are cash contributions or withdrawals that we can then manage.”
Frederick (Ted) Stanley, the CEO at Evare, described the company as a utility that takes data in any format and delivers it in any format.
“We act as a universal translator. An investment manager has to deal with all kinds of custodians because his clients can have their assets anywhere. All of the custodians have offered him free software to communicate with them electronically, but he can’t afford to create a separate work process for each custodian,” Stanley explained. “With Evare, he can send us one file and we will deliver over SWIFT to the custodians who are on the network, and for those who aren’t, we will deliver any way they want.”
Evare, which has built its engine on Microsoft’s .NET Framework in C#, is the only company that offers message transformation as a standalone service, Stanley added. Others, like Brown Brothers Harriman with Infomediary, or ADP and SunGard, offer message transformation as a way to sell other products and services.
“We are a neutral party,” he explained. “We can help people with assets held away because we can talk to all the custodians. Being a neutral third party can be useful when Citi needs data from The Bank of New York.”
Evare started as a portfolio management system company, creating software for small towns and investment managers to use to manage their portfolios. From the beginning it has built everything on Microsoft. Eventually it began providing connectivity between the towns and investment managers and their custodians, and it evolved from there.
Since starting with Evare, Breckenridge Capital’s assets under management have grown from a little over $3 billion to $4.25 billion while the staff levels have stayed the same.
“Evare has tremendously improved our ability to be timely in how we are managing the accounts. We know today if yesterday one of our clients contributed money to their account,” said Meyers. “Some advisors notify us immediately, but many others could take 24-48 hours out in letting us know there is money in an account. Our goal is to be fully invested so we don’t like to let cash sit.”
Breckenridge also has begun using Evare to send transaction communications to custodians. The subadvisor transmits a file to Evare which then transforms it into the format the custodians want – usually a SWIFT message, but sometimes a flat file. Breckenridge sends Evare a spreadsheet of trades at noon and 4 p.m. and receives an acknowledgement back in minutes.
www.evare.com