Straight-through analysis and processing for proprietary investment managers. Wealth-management technology maker InvestEdge and portfolio-optimization provider Northfield Information Services have teamed up to offer private-asset managers tax and trading efficiencies across large numbers of big-ticket accounts by linking Northfield’s “Open Optimization” risk-measurement and trade-recommendation tools with InvestEdge’s portfolio management, trading, rebalancing and client-reporting software.

“The integrated solution is ideal for firms where investment managers handle large numbers of high-value accounts,” InvestEdge CEO Bob Stewart says in a press release. “Most managers [do not monitor] the risk factors of each portfolio by incorporating the tax circumstances of the investor and the tax considerations of the existing portfolio,” he says. That leaves them “unable to respond promptly to new information about market conditions while concurrently considering the myriad tax implications of proposed portfolio changes.”

The InvestEdge-Northfield offering adds up to an overlay portfolio management system. “Overlay” refers to the process of rationalizing duplication across accounts or sub-accounts while attempting to enhance the overall tax efficiency of each investor’s holdings.

One screen

The InvestEdge-NorthField partnership offers taxable-account managers analytical risk models that analyze each portfolio and provide suitable buy-and-sell recommendations. Once approved by the manager, those rebalancing suggestions can be passed directly from InvestEdge to the trading system. The system also generates before-and-after reports to show the effect of the transactions.

Multi-family office Glenmede Trust is having InvestEdge’s software grafted on a pre-existing Northfield optimization system. “Our goal is to streamline the process so that portfolio managers can spend more time on client accounts,” says Paul Sullivan, a research analyst with Philadelphia-based Glenmede. As things stand, he explains, managers have to look at one interface to see a client’s holdings and another to see trade recommendations. With InvestEdge in the mix, everything will be on a single screen.

Randy Bullard, president of Placemark Investments– a Wellesley, Mass.- and Dallas-based overlay manager – sees similarities between the InvestEdge-Northfield solution and SunGard’s overlay offering to banks and trust companies.

But where SunGard’s program is meant to help asset-managers broaden asset allocation for high-net-worth clients by supplementing discretionary investment picks with other managers’ models, the InvestEdge-NorthField play is aimed more squarely at managers who keep the bulk of the asset management in-house.

Substantial market

SunGard’s approach to overlay comes in two flavors. The Wayne, Pa.-based company says that for trust departments with more than $10 billion in trust assets – or ones with sufficient analytical sophistication – it offers an advisor-driven version of overlay management in partnership with Cambridge, Mass.-based software maker Smartleaf. Another version, intended for banks with trust assets between $1 billion and $10 billion, calls for outsourcing the overlay function to a multi-discipline account manager. For that, SunGard has a partnership with Parametric Portfolio Associates, an overlay manager based in Seattle. The thinking here is that small banks might be glad for help with the overlay portion of running multi-discipline accounts.

Those differences aside, Bullard says there’s “a substantial market niche” for the InvestEdge-Northfield offering. “It could be very attractive for trusts that manage most of their assets in-house.” Glenmede is a case in point. Sullivan says the firm acts as a manager of managers for its clients’ satellite allocations, but the core investments are selected and managed by Glemede’s team of portfolio managers.

There’s no reliable data on the amount of proprietary versus non-proprietary trust and investment assets held at regional banks, but those assets combined came to about $2.5 trillion at the end of June 2004, according to SunGard. For the most part that doesn’t include assets managed by community banks, investment counsel firms and multi-family offices.

InvestEdge describes itself as a “provider of wealth management solutions to banks, trust companies, brokerage firms, and financial advisors.” The Pittsburgh-based company has been in business for five years.

Boston-based Northfield goes back 20 years. In addition to its alliance with InvestEdge, it has partnerships with Softpak, R-Squared, Rimes Technologies, New Frontiers Advisors, Instinet, Haugen Custom Financial Systems, FactSet Research, CheckFree Investment Services and Alpha Neural Network. –FWR

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