RS Investments Podcast
Views expressed in the podcast regarding Charles River Development and its products are the views only of that individual and do not necessarily represent the views of RS Investments, or any other person in the RS Investments organization.
RS Investments – Larry Chu, Chief Technology Officer
RS Investments, an investment advisory firm in San Francisco serving institutional and individual investors, has been a Charles River customer since 2007. In this podcast, Larry Chu, Chief Technology Officer for RS Investments, discusses how Charles River’s products and services creates efficiencies for portfolio managers and traders and helps his firm manage for growth.
We’re here with Larry Chu, Chief Technology Officer for RS Investments, an investment advisory firm in San Francisco serving institutional and individual investors that leverages Charles River’s Application Management and FIX Network services.
Larry, how long has RS Investments been a Charles River customer; and why did you originally select Charles River IMS?
Well, we started the implementation at the end of November 2007 and went into production in April, 2008. The primary reason for switching over was that our existing systems were good, but they had their limits. We needed better compliance filtering, especially in the areas of pre-trade, at time of the trade, and post-trade. We just had too many manual processes; things were subject to errors, they were easy for things to be missed. We felt that we needed to have a better grasp of being able to control and manage our assets better.
CRD evolved out of a compliance platform, so that was a critical element in our decision. We’re a small shop. We needed to get better economies of scale; be more efficient in how we were processing our trades and just our general workflow.
Well, how has Charles River streamlined workflows for your Portfolio Managers, Traders and Compliance officers?
One of the things it really forced us to do was to re-think how we did things here. It’s easy to get in that mode where you say, ‘Well, that’s how we’ve always done things.’ Like any organization, I think it’s easy to have that situation come about. What using the system allowed us to do was to better share information between our PMs and our traders, and between our traders and settlements group, and within our own compliance and accounting staffs.
Well, how do you see the investment advisory industry evolving over the next 3 to 5 years?
I think what we’re seeing quite a bit right now is move in legislation where they’re talking about fee structures changing. I think to be more competitive firms have to learn how to do a lot more with less. So again, going back to one of the reasons why we switched over, we need to get better economies of scale and be more efficient with process and workflow. I think firms need to be more nimble and flexible in terms of assets and portfolios changing, lines of business changing.
In particular, we’re seeing more of a shift towards a global economy, less of a home-country bias. That’s going to end up forcing more places to go to 24-hour trading which then starts to introduce new risk associated with, say, currencies and other forms of volatility that exist. I’ve mentioned a broader mix of assets; we’ll need to figure out ways to reduce that risk and increase returns. Systems are going to have to be able to deal with asset types that portfolio managers, and some of the research people, start to come up with.
One interesting thing is we’re seeing a shift in demographics; the population is getting older. We’re seeing public policy change as there’s been a fairly great deal of publicity that’s been in the media lately about switching public agencies out of Defined Benefit Plans. So what we’ll probably end up seeing is more of a change in how people deal with retirement savings. More of a shift towards Self-Managed Funds; shift in short-term price changes, more to getting longer-term cash flow as being the means to generate returns. We’ll probably see more of a focus on fundamentals.
From a compliance and regulatory environment, things continue to get stricter while clients and shareholders want more assurances that their assets are being protected. For the people here, I always wonder about information overload. How do you filter out all the good and relevant information and eliminate all the noise? You have your research and the process of evaluating good investments, and that’s going to be more important to the management of a portfolio.
What that all comes down to in terms of your technologies and trading systems is we keep seeing more points of integration, especially when you look at trading venues outside the traditional use of exchanges – things like dark pools, crossing networks, your ECNs. Applications are looking to be more efficient and we’re looking for more liquidity. We always see that happening on the desk. The ability to do: algorithmic trading, block trading, single-ticket order aggregation, order matching. All those are complexities that we didn’t see in trading systems several years ago. Then you start to introduce the content side of things. Before, things were more self-contained within our own organizations. Now we’re finding that you have these personal devices, so you have a more mobile workforce, geographically-dispersed workforce, a demand for content that arguably can be created and disseminated out to basically any electronic device that can receive the signal these days.
I understand that best-sourcing is a key element of RS Investment’s operating philosophy. Could you tell me a little bit more about this?
Well, our staffing emphasis has always been our core competencies. We are an investment management firm, not a technology firm. So, IT’s primary focus should be on designing and maintaining a robust infrastructure to support our information needs. But, as I’ve mentioned before, the integration, all the applications are becoming too highly specialized and complex. In my view, the vendor has the most expertise, and that expertise will continue to evolve as the products evolve. Now on the staffing side, if you try and do it in-house it becomes too expensive when you’re trying to hire for specific applications. Your expertise will start to diminish as the product evolves.
Employee compensation; looking at salaries, bonus, benefits, that’s always an organization’s single biggest expense. Your second biggest expense is usually rent and anything associated with occupancy. So you have a more efficient use of space; and using that space for investment professionals rather than for support people. A third consideration is that anytime you lose employees your turnover results in the loss of institutional knowledge, and then you incur additional costs in the hiring and training of new people, even if they are fairly versed in the type of technologies that you have.
Well, how do Charles River’s outsourced Application Management and FIX administration services help your firm manage for growth?
Well again, we’re a small firm. You don’t get the economies of scale in the various areas of expertise. So you end up with excess capacity and you end up hiring. The specialists don’t like to be generalists. Having Charles River’s Managed Services and FIX Administration allows for us to have resources deployed on an as-needed basis. So whether we have a project, specific problem, want to do a reassessment of our workflows or information flow, we can just go to somebody within the organization and say, ‘OK, we need some help here.’ We don’t always have to have that in-house. We also get 24x7 coverage, when our firm typically only provides 12x5. We don’t have the additional expense of having all the support tools for system monitoring and administration.
Well, thank you very much, Larry, for sharing your perspectives with us today.
Sure, you’re welcome.