DSTi Brings HiPortfolio to U.S. in Bid for New Markets

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1 Products, D. Furlonger, K. Brenneman Research Note 16 January 2004 DSTi Brings HiPortfolio to U.S. in Bid for New Markets DST International is making a concerted effort to expand its portfolio management solutions into the U.S. market. HiPortfolio/3 will be a strong contender, but the competitive landscape won't prove to be easy. Core Topic Financial Services: Financial Services Architectures and Emerging Technologies Key Issue Which traditional and emerging vendors and applications will meet FSPs' key operational and decision-support needs? On 12 June 2003, DST International (DSTi) announced the U.S. launch of HiPortfolio/3, its investment management back-office solution. HiPortfolio has been the market leader in Europe and Australia. DSTi is positioning the product as a "fully integrated back-office product" that links into other DSTi front-to-back-office system components. DSTi will offer a licensed version and a hosted application service provider (ASP) version from its Kansas City, Missouri, data center. DSTi is a leading player in the global market for investment management technology, competing principally against Advent Software, Eagle Investment Systems, Financial Models, SunGard and Thomson. DSTi offers an integrated suite of frontand back-office products. However, U.S. market awareness of DSTi's products is limited. Its HiPortfolio line is rarely considered by U.S. enterprises, which are accustomed to more-well-known product alternatives, such as Advent's Axys, Financial Models' Pacer or Princeton Financial Systems' PAM. Market Background and Key Acquisition History HiPortfolio is DSTi's most-popular product. In a highly competitive market, DSTi's multinational and multicurrency capabilities have given it an edge in Western Europe, South Africa and Australia, where the system originated. Key clients include ABN AMRO, Prudential Financial, Swiss Re and AMP Limited. To keep pace with SunGard, DST made two key acquisitions in 2003: Askari Risk Management. On its acquisition on 4 March 2003, Askari's enterprise risk management product, TruView, became HiRisk and was fit into DSTi's suite. The intellectual property rights to MetaStreamer from Bremer Associates. On 16 June 2003, MetaStreamer became Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 HiWay, the middleware and data integration component of DSTi's suite. DSTi already had a performance measurement and attribution module, HiPerformance. By launching HiPortfolio/3 in North America, DSTi aims to make inroads in the United States and in new Asia/Pacific markets, particularly China. Competition HiPortfolio's chief competition in the United States will arise from the following vendors: Advent/Axys: Strong functionality for retail business with an optional data warehouse module Advent/Geneva: Multicurrency system for large international asset managers; integrated general ledger CheckFree: Strong separate account functionality; outsourced only Eagle Investment Systems: Targeted at large asset managers, with good data management and customer service; optional data warehouse module Financial Models: Multicurrency system written in Fortran with global customer base; complementary performance measurement system INDATA: Integrated with portfolio accounting and order management, with ASP option available; focused on the U.S. market Integrated Decision Systems: Strong separate account functionality and plans to add performance attribution; recently moved to outsourced-only model Misys Asset Management Systems: Targeted at institutional and private banking markets in Europe (tuned to the U.K. market); strong client base and functionality Odyssey Asset Management Systems: Aimed at the European private banking market; strong wealth and privateclient management functionality Princeton Financial Systems: Strong system for large, complex institutional asset managers QED Information Systems: Strong in fixed income, moving into institutional asset management; government/pension client base is consolidating SS&C Technologies: Strong in the hedge fund market and fixed income, with integrated portfolio accounting; has had recent success in providing outsourced processing 16 January

3 SunGard/Decalog: Strong for wealth management and private banking, and integrated with SunGard's popular Invest One accounting system; originally developed for the French market Thomson: Strong multicurrency functionality and customer base; Thomson's commitment to the product is doubtful, however; product needs upgrading HiPortfolio/3 Key Product Highlights Benchmarking. No independent benchmarks are done; clients perform them as a separate activity. Configuration. Within the applications themselves, the product can be configured at different levels system, company and portfolio. It provides real-time accounting at multiple levels with varying accounting frameworks and practices a feature likely to be attractive to U.S. units of global financial services providers. Specific modules will perform local tax jurisdiction reporting requirements, such as a Schedule D for insurance companies. And it addresses a variety of assets such as equities and fixed income, including regional variations of instrument classes. The system is preconfigured for multiple market segments; it started as a pension fund administration tool, and added insurance and mutual funds third-party administration, and private-client management functions. Users configure for their desired market segments. Configuration is part of the implementation, although consulting for implementation is priced separately. Database. The system can dynamically commit or artificially batch transactions, as well as process events at custom set periods. The database architecture is a central core accounting database component (FairCom's c-tree) that sits beneath the HiPortfolio Indexed Sequential Access Method (ISAM) database structure. ISAM propagates data to a Sybase central enterprise relational data warehouse that provides access to data through an open environment and combines operational and market data. Programs perform calls to the database at a speed faster than the relational database structures, which are not flat files. An operational data store is used for the front-office applications and acts as a position-keeping system. Jobs can be scheduled for data not yet written and then updated to the relational database. The application has an online back-up and point-in-time recovery for files. Disaster recovery. Disaster recovery depends on how the product is implemented. For example, a managed application service includes disaster recovery. DSTi targets disaster 16 January

4 recovery more at the retail market than institutional customers. Interfaces. HiPortfolio/3 provides generic interfacing layers and enables straight-through processing (STP) for electronic trade confirmation, for example, using various messaging standards. Licensing structure. Licensing is by module and concurrent user. If licensed in-house, there will be a one-off, up-front fee plus maintenance. The smallest configuration starts at approximately $150,000 and totals into the millions, with a fee (25 percent to 30 percent) based on service required. Modularity. The system works by full delivery of all software, permitting customers to disable those functions already in operation on their in-house investment management systems. Reporting. The standard HiPortfolio reporting function includes standard reports and customer report capability for each business area, as well as a Web-based client reporting system. Restrictions. Although database construction will determine it, HiPortfolio/3 offers total flexibility in real-time, reporting and inquiry. There are no restrictions on valuations, or assets, reports and transaction uploads. Scalability. HiPortfolio/3 is available on Microsoft Windows 2000/NT or Sun Microsystems' Unix. The system is highly scalable on Unix because of multiple processing; the product has been designed to support a multiprocessor environment. DSTi has explored a Linux version, although it sees no shortterm customer demand to date. Security. HiPortfolio/3 has defined security and hierarchy parameters and user access rights. It provides an audit trail of such functions as user log-on, access, activity and transaction processing. Support. DSTi offers support centers in Boston, as well as Hong Kong, London, Melbourne, Singapore, South America and Thailand. Affiliate consulting offices are in New York, Paris, Sydney and Wellington. Around-the-clock contact is available via phone, and directly through DSTi's Web site. Product Strategy: With HiPortfolio/3, DSTi has a true STP solution for investment management that can compete in the North American market, where, until now, DSTi has lacked a presence. DSTi is likely betting that STP will triumph over a "best-of-breed" approach to buy-side automation. The product also surmounts a difficulty 16 January

5 found in its earlier Btrieve versions access to information for reporting purposes by incorporating the companion Sybase relational database with a FairCom c-tree flat file structure at its core. Strengths: DSTi is a leading vendor of portfolio management technology in the European, Australian and South African markets, with a strong client base that will be eager to upgrade to HiPortfolio/3 from earlier versions. DSTi has a complementary suite of products for risk management, order management, performance measurement and compliance. DSTi's OpenMessenger middleware is a strong selling point, making HiPortfolio/3 easier to integrate with legacy systems. DSTi can tap into services and support from its parent, DST Systems, in North America. DSTi offers an ASP version for North America. HiPortfolio/2 is the standard portfolio management system in the Australian market. HiPortfolio/3 provides improved reporting and data access with its companion Sybase database. HiPortfolio/3 has an integrated portfolio accounting system. The system is noted for its flexible portfolio modeling functionality. HiPortfolio/3 supports U.S. and Canada regulatory reporting. HiPorfolio has a strong customer base among mutual fund providers and insurance companies, and is seen as an optimal system for those asset management scenarios. HiPorfolio has demonstrated the necessary scalability for financial institutions that want to use the system to provide outsourced processing to smaller investment managers. Challenges: HiPortfolio lacks a presence in the North American market, although the recent Swiss Re Investors installation means that DSTi had to add functionality for regulatory reporting to comply with U.S. and Canadian rules. DSTi must prove itself against powerful foes because North America is an intense competitive environment. Gartner does not foresee any large migration away from those entrenched vendors. 16 January

6 The system's core database is FairCom's c-tree, popular in the embedded database market but little seen in the North America market for financial services technology. DSTi must demonstrate that users will need scant administration or expertise. Consider This Product When: You are a large, multinational financial institution (particularly asset management, insurance or mutual fund company) seeking a multicurrency system for portfolio management and accounting. You are an asset manager desiring a single vendor to provide a complete front-to-back office solution and remove the headaches of dealing with multiple vendors. You are a current user of DSTi's HiPortfolio/2 or GPS and are looking to upgrade. Consider Alternatives When: You are a small asset manager operating within a single country, although you may still want to investigate the ASP version of HiPortfolio/3. You have already heavily invested in another vendor (such as SunGard) that can provide an STP solution and you are satisfied with that vendor. You are looking for a solution primarily for private client management, although HiPortfolio/3 is stronger in this area than earlier versions. Advent Software remains the key vendor here for the North America market. DST International Headquarters: Surbiton, Surrey, England Web Location: Acronym Key ASP application service provider DSTi DST International STP straight-through processing Bottom Line: If the straight-through processing philosophy becomes the standard in the investment management industry, DST International is well positioned to become a crucial infrastructure vendor for this industry, matching up well against Advent Software and SunGard. If the "best-of-breed" solution predominates, DSTi is one of many competitors. Either way, the U.S. market will be difficult to crack, because HiPortfolio/3 although strong is not a proven offering in the North America market. 16 January