Acquisition improves APL interface and jumpstarts its replacement platform. E-commerce technology company CheckFree plans to buy Upstream Technologies, an investment-decision-support and trade-order-management toolmaker. CheckFree plans to make Upstream part of its Jersey City, N.J.-based CheckFree Investment Services (CIS) division, which provides portfolio-management, client-reporting capabilities to separately managed account (SMA) managers and sponsors.

Norcross, Ga.-based CheckFree has agreed pay $28 million in cash for Boston-based Upstream. The deal is expected to be completed before the end of this month.

Upstream wasn't available for comment.

Two things

"With our agreement to acquire Upstream, CheckFree is reaffirming its commitment to technology and industry leadership in the [SMA] market, with key functionality that clients have been requesting," says CIS general manager Michael Gianoni."This is a significant step forward in executing on the CheckFree strategy for the investment-management and wealth-management industry."

More specifically, the acquisition of Upstream gives users of CIS' APL technology access to a better and more "intuitive and appealing" interface, says CIS marketing head Hilary Fiorella.

Upstream's technology also gives CIS a shortcut to EPL, the "next generation" workflow and account-service platform with which CIS plans to replace APL.

Upstream "gives us a trading-decision-support and order-management module for EPL, which is a very large part of [EPL]," says Fiorella. "For those of our clients using APL and Upstream, there will be one less module to migrate when the time comes to move to EPL."

The migration from APL to EPL, the bulk of which must be done on weekends, will begin this year with three beta testers and continue through the next several years with CIS' other 350 or so APL clients, says Fiorella.

Competitors

If CIS, the dominant player in SMA portfolio technology, hasn't actually been feeling pressure from competitors such as Wakefield, Mass.-based Vestmark and Edison, N.J.-based Market Street Advisors, these firms have at least succeeded in drawing attention to themselves as alternatives to APL.

CIS' competitors have been able to point to APL's 1980s functionalities and the seemingly interminable wait for EPL -- which CIS has been promising to launch "later this year" or "next year" since at least 2004.

Vestmark in particular seems to have gained ground through participation in SMA-processing platforms run by JPMorgan Chase, Citigroup and BISYS (which Citigroup recently agreed to acquire).

Vestmark's president Rob Klapprodt says CheckFree's acquisition of Upstream amounts to "a public declaration that EPL is a failure." He adds that it remains to be seen whether Upstream, which emerged in 2004 as an investment-management system provider to institutional asset managers, has proved its ability to cope with "retail volumes" required by SMA managers and sponsors.

Upstream and Vestmark are technology providers to Citi's SMA processing platform. Upstream contributes overlay, optimization and tax-management technologies. Vestmark provides portfolio administration and performance measurement -- though Citi's SMA processing, like that of JPMorgan Chase, is also compatible with APL.

Scalability

Charlotte, N.C.-based Adhesion Technologies, whose RIA-centric WealthADV unified managed account platform uses Upstream's model-, investment- and order-management systems, might disagree with the characterization of Upstream technology as possibly unsuited to private-client accounts. So too might New York-based index-based fund distributor American Independence Funds and Credit Suisse's Advanced Execution Services, which provides Upstream's order-management system to boutique asset managers.

And CIS seems to think that the addition of Upstream will make it a bigger name in RIA and trust-company spaces. "We're really excited to be able to broaden our offering," says Fiorella.

Justin van Til, head of business development at Cambridge, Mass.-based overlay-management technology provider Smartleaf, says Upstream provides compelling advantages to traders -- and hence its money-manager business, which he reckons accounts for about half of its annual revenue. "Within that segment CheckFree is facing increasing pressures from [competitors like] Vestmark and institutional order-management firms" -- such as Charles River and Investment Technology Group (owner of Macgregor XIP) -- "as well as the requirement to deliver on" EPL. -FWR

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