Risk Management Software Launched For E-Brokerage Clients

by Donna Winston, Investors Offshore.com, New York

27 June 2001

Algorithmics Incorporated and Morgan Stanley Prime Brokerage have launched an on-line risk management service for Morgan Stanley Prime Brokerage's hedge fund clients. The service, called AlgoLink, based on Algorithmics' recently-launched Mark-To-Future technology, is delivered through an Application Service Provider (ASP) model and provides clients with risk exposures by industry, sector and index, Value-at-Risk (VaR) reports, as well as stress testing using historical and discrete scenarios. AlgoLink also incorporates option analytics to properly evaluate and model derivative and complex instruments including options, convertible bonds and futures. The reports include positions held at multiple custodians for users of Morgan Stanley Portfolio Accounting software.

Guru Ramakrishnan, managing director at Morgan Stanley, said: "The Morgan Stanley-Algo partnership will provide the right framework for establishing industry transparency, appropriate benchmarking and risk-adjusted return metrics which will be critical to the ongoing success of the hedge fund industry."

He believes that asset managers, investors, regulators and credit providers will all benefit from the creation of clear standards to highlight the risk and reward characteristics of hedge fund investments.

Michael Zerbs, vice-president of research and product marketing at Algorithmics, said: "We are finding that the needs of hedge funds are surpassing the natural limitation of today's simple risk measurement approaches. Building on Mark-To-Future, AlgoLink provides forward-looking risk-return analysis, not just retrospective performance attribution."

An enhanced and interactive version of the software, AlgoLink Interactive, is currently under development and will allow clients to control the aggregation of position data from multiple custodians and to add and adjust positions and scenarios on an intraday basis. In addition, AlgoLink Interactive, powered by Algorithmics' Mark-to-Future methodology, will enable users to design and maintain user-specified stress test libraries and customize the content and
format of the risk reports.

AlgoLink is included as part of Morgan’s standard offerings for significant clients, and is available for purchase separately. Algorithmics is 20% owned by the parent company Morgan Stanley.

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