BAAM or Bust?

It's March, and yet another season of fantasy baseball is upon us, which means—instead of praying that the worst team in The Show, my Philadelphia Phillies, finally dump salary and start over—I'm poring over advanced statistics and the internet's million opinions about who is over- and undervalued ahead of a draft.

As ever, you don't want a mistake at the top, no matter how good or tempting the brand value—the consequences can be dire. Take Troy Tulowitski: he is, by far, the most complete shortstop in baseball, but can never seem to put in even two-thirds of a full season due to injury. Knowing that, is he worth the gamble with one of your first few picks? Or better to go with someone at a deeper position, with a slightly lower performance ceiling but a far more reliable floor?

Of course, we all know vendor selection is fraught with similarly messy questions, and unlike a fantasy league, the downside risk is quite real. But so too is vendor entry a matter of intrigue—particularly when the vendor is actually an end user's technology externalized.

Back in the Day ...

Citadel was really coming on strong back when I interviewed their then-CIO, Tom Miglis, and a half dozen others on the business and trading sides, for a Waters profile in December 2012.

Each one of these situations is unique in its back-story and characteristics, and there is much to like about what they're doing. And who knows who will be next: Two Sigma and Renaissance, you're up.

Among all the wares the hedge fund was selling then—from their sweet spot in the new swaps execution landscape, to dramatic gains in equities execution—the most interesting was the impending launch of Citadel Technologies.

It wasn't the first of its kind. In fact Citadel, itself, had sold its Omnium platform off a few years earlier to that other Chicagoan giant, Northern Trust.

But this was one of the most powerful hedge funds in the world now declaring it would be a (legally-separate) technology company as much as an asset manager. And not just in the way Lloyd Blankfein still describes Goldman Sachs.

What's happened since then with the project is ... well, hard to really say. On the plus side, we heard quite a bit for the first year or so about endowments, sovereign wealth funds and other institutional investors flocking to the newly-christened provider. REDI Technologies—speaking of Goldman—got involved with a partnership. And I have no doubt, having spent four hours on Citadel's trading floor and in its the gleaming new server stacks at their home office, that the technology is, in fact, extraordinary; their people, extremely smart.

But Citadel Tech lost its first business-side leader, Stuart Breslow, pretty early on. He turned up at Chopper Trading; perhaps chalk that up to a poor fit. More importantly, we haven't heard a whole lot after that initial flurry in 2013 about implementations. So much so that, this week, when Blackstone and DE Shaw announced a similar foray into technology with their Arcesium outfit, I actually thought, "Wait, whatever happened with that?"

What's Up?

So, if the tech is good and the brand is solid, then what is it that could cause things to ice over a little bit?

One thing could just be natural mistrust, having nothing to do with the tech quality or service level at all. I can easily see fund managers competing with the quants at Citadel—or for that matter, DE Shaw—simply avoiding the opportunity to run their shop on an enemy's platform altogether, no matter how good it is.

Stickiness is probably the bigger issue, though. Whether in execution, trade and position keeping, or post-trade, the buy side is chock full of big-time, third-party options that, for the most part, don't supply the same potential conflict of interest.

It may just be that the idea of attaching a technology element to the same people you do execution work (or hedge fund services) with isn't quite the fantastic proposition it seems. I'm not sure.

Arcesium and its backers would love to prove that idea false—and they may well; I'm rooting for them, just as I was for Citadel. Each one of these situations is unique in its back-story and characteristics, and there is much to like about what they're doing. And who knows who will be next: Two Sigma and Renaissance, you're up.

It will be fascinating to watch—when I'm not buried in spring training and sabermetrics, anyway.

In Case You Missed It:

Anthony Malakian produced a fantastic deep dive into fixed income ETFs this month in Waters, with BlackRock, State Street, and the Godfather of ETFs, Cantor's Reggie Browne, all weighing in.

His column about the space is also worth a read.

Staying with fixed income, John Brazier told us about transaction cost analysis migrating that way in his first Waters feature.

Mutual funds were in the news this week with the DTCC launching a new report service.

And, Dan DeFrancesco caught up with the chief information officer at one of the biggest mutual fund giants of all, Vanguard, as he profiled John Marcante.