CarbonBased Consulting Releases Buy-Side Spending Survey

Spending to Remain Steady; Strategic Planning and Risk Management Lower Priority

New York/ Feb. 3, 2003/: Technology services firm CarbonBased Consulting, Inc(CARBON), today released findings from its new, yearly 2003 Buy-side IT Spending and Trends Survey which revealed that many hedge funds and investment managers are not managing or allocating significant resources to optimize technology and operations.

"The single biggest risk to that we found is the apparent continued ad hoc nature which hedge funds and investment managers approach vital areas as back offices and technology. This will have to change," said Brian Shaprio, President and CEO of CarbonBased Consulting, adding, "Greater focus and build out in areas of technology, operations, legal and compliance will be key to demonstrating a controlled environment to regulators in the future."

The survey found that spending, while not rising, will remain steady this year. Only 31% of firms surveyed said they would increase spending on IT and Ops in 2003, compared to 41% last year, 55% said spending would remain flat and only 11% predicted a decline, compared to 19% the year before.
Carbon surveyed a representative industry sample of 230 buy-side organizations, comprising RIA and Investment Managers (48%), Hedge Fund (40%), Fund of Funds (9%), Private Equity (3%), in November and December of 2002. Average assets under management were just under $1 billion, with funds ranging in size from $15 million to $13 billion. Staff size ranged between 15 and 250 employees.

These key buy-side decision makers were asked to assess where they would be allocating resources, and what had proved successful, in the area of information technology and operations during the past year and looking forward in 2003.

The survey highlighted significant statistics on buy-side budgeting and planning. A majority of firms surveyed, 59% of respondents, reported having a budget for IT and Ops while 41% of that group said the budget was tied to a strategic business plan. However, fewer than 35% had a budget and no plan and approximately 18% and no budget and no plan.
There was a continued reliance by the buy-side on their prime brokers or sell-side counterparts on technology transfer. On average, survey correspondents spent 4.74% of gross revenue, which compares with 7-12% rule of thumb for the sell-side.

Similar issues emerged regarding tracking success. 33% of respondents did not track the success of IT spending, did not have a budget, and did not have a formal plan. Of the 25% of the buy-side firms that did track success, half of them employ formal ROI methods while one-third of them simply rely on positive user feedback and acceptance.

While 51% of buy-side firms attach a high to medium priority to risk management practices or sophisticated risk management techniques, this has not resulted in significant commitments to risk reporting capabilities. "When asked about risk management either portfolio or operational," said Mark Garmon, a Senior Consultant at Carbon and co-designer of the survey, "35.71% of the firms attached a low priority and do not employ sophisticated risk management systems or techniques."

Mr. Garman believes this is, in part, a consequence of a combined lack of desire for greater transparency and unwillingness to invest in very expensive risk management software or services. "Most fund managers are very content with basic, exposure reporting and performance reporting from primes and good old fashion spreadsheets," he added.

Respondents were asked which areas of technology investment were the least successful. Nearly 32% cited one of the industry’s biggest problem is the lack of availability of reliable, robust and easy to use general ledger product in the market place. Portfolio accounting (not management) and asset allocation support was cited by 30% as the least successful IT areas.
On the communications front, a combined 45% of respondents highlighted use of the Internet, investor relationship management, and reporting as other areas where they have not enjoyed considerable success.

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