TALE OF TWO CITIES

Edinburgh and Boston

Not exactly London or New York, but then, that's sort of the point. Both locations thrive on the very sense of community that defines them.

And while investment management firms have grown up in the strangest places (Waco, Texas, anyone?), These two cities have drawn more than their fair share. And both are home to the largest fund management firms on their respective sides of the Atlantic (Standard Life and Fidelity).

Those massive institutions have certainly done their part in attracting like firms and financial services vendors. They've also planted their share of acorns, regenerating the community even as they grow.

In fact, each plays host to a whole number of buy-side forums where colleagues actually share ideas and help each other.

Edinburgh by Andrew P. Delaney

It's not London. But then, Edinburgh's star is definitely rising--right along with the amount of assets (£60 billion) under management at Standard Life, the largest investment management company in Europe.

And Standard's just one of a number of investment management firms that call Edinburgh home. Among the big names resident within Edinburgh city limits are the aforementioned Standard Life, Scottish Widows, Baillie Gifford and Edinburgh Fund Managers.

Add to that list a host of boutique hedge fund spinoffs that have found life in the past few years, and what you have is a community of sophisticated finance professionals requiring service and technology support.

Concomitant to them all are the challenges of running and supporting a serious investment management organization located many miles from the financial center. How do you ensure that mission-critical systems are kept running? Where do you find the appropriate level of staff? And how do you keep people from the temptation of a higher life, and bigger dollars, that the Big City offers?

Like many quaint European capitals, on the surface Edinburgh is charming enough to hold that quality-of-life appeal. Okay, so the weather leaves something to be desired (it rained, as in poured, on five of my six visits), but the city's beauty, its sense of culture and civility and its burgeoning financial services industry make it increasingly attractive to those seeking an alternative to ever-so-swinging London.

BRIGHT LIGHTS, SMALL CITY

But Edinburgh's credentials as a financial center shouldn't be overlooked. As much as its residents and employees love living and working there, they stress the center's own brand of high-pressure, real-time business culture. And they suggest that the city's sense of identity gives those who work there a unique sense of autonomy that City of London IT managers may not enjoy.

"Edinburgh has an innovative climate," says one IT director at an Edinburgh fund manager. Others echo the sentiment that Edinburgh technology managers are given more leeway to embark on more adventurous projects.

Indeed, technology directors at several Edinburgh fund managers say they are in the midst of implementing straight through processing and middleware initiatives. Meanwhile, many in the larger centers continue to sit around and talk about such projects. Without the huge technology budgets of their counterparts on the sell side, the buy-side technologists' initiatives may seem modest. But they represent a step forward from the five- or 10-year ritual of portfolio management systems evaluation and a relief from the monotony of Y2K or euro compliance.

Whatever the project, though, users and vendors alike say Edinburgh's relatively small size and the close-knit nature of its IT community mean that technology managers often get access to high levels of management. That means that they are closer to the business--and the business managers who need to approve new technology concepts. As one IT manager puts it, "Year 2000 and other pressures have hammered it home. Technology is not a necessary evil."

CULTURE CLUB

Technology managers in Edinburgh have been able to forge strong relationships not only vertically but horizontally as well. When a burgeoning boutique was recently forced by Y2K issues to upgrade its core portfolio management platform, the IT director called in help from other firms in the Edinburgh market.

A catalyst for this environment of collaboration, which might be somewhat difficult to imagine in other financial centers, has been the Scottish Investment Managers' Forum. Ostensibly established to provide a vehicle for discussions about the impact of Y2K, the forum has evolved into a kind of social club that meets every six to eight weeks. Usually communicating via e-mail--or in person over a round of golf or drinks--members swap tips about technology. Says one participant: "Two years ago, there was no opportunity for this kind of thing. Initially, it was Year 2000, but now it looks as though it will carry on."

But it's not all a bed of roses. Being located some 350 miles from a full-blown financial center--London, remember?--can pose its own problems. Perhaps chief among them is access to trained labor. Edinburgh's location with respect to this issue is something of a double-edged sword. On the one hand, managers complain of a dearth of impeccably suited and trained candidates for technology posts at their firms. On the other, they gloat about the low turnover of staff, due mainly to the relative scarcity of rival ships to jump to.

That said, IT managers have been able to draw quality technical staff from other technology-intensive industries--like utilities and health care--that have made their homes in Edinburgh.

Despite this, competition for talent is hot. "We try to keep the work environment stimulating," says one IT manager at a major Edinburgh fund. One of the weapons at employers' command, of course, is the compensation package. During a recent visit, IT managers were complaining that Standard Life, the city's largest financial services employer, had begun offering salaries as high as London's.

DATA CENTERS

Another arrow in the employers' quiver is location. Many of Edinburgh's fund managers congregate around two central points in the city. The Exchange, as it's known, is home to parts of Standard Life, Scottish Widows and Baillie Gifford. The more traditional home of Edinburgh's fund management business, though, is the New Town, a smart, formerly residential area built during Georgian times and home to Edinburgh's famous Charlotte Square. A number of smaller boutiques have sprung up here--as have some of the vendors who support the Edinburgh market--transforming the district into something of a yuppie paradise.

A third center--a business campus known as the Guyle--has grown up to the west of the city. The pros of this location, aside from its brand-new office environment, include its close proximity to the airport, giving fast access to London and the Continent. Few of Edinburgh's workforce, though, can honestly say they'd prefer to work here than in the center.

Edinburgh's distance from London also poses a challenge for vendors with major clients in the Scottish capital. Relatively few vendors have chosen to establish offices there, choosing instead to support their customers from central or regional headquarters in or close to London. Among those with a presence in Edinburgh are Primark Investment Management Systems (Pims), Reuters, Barra and Bloomberg, which opened its office there a few months ago.

Not surprisingly, those with local offices laud the benefits of being close to clients. "We have five customers within walking distance," says Allison Hume, commercial services manager for Pims, whose offices are in the center of the New Town. "We have probably 10 customers within 10 minutes of here." Pims uses its office as a support center primarily for clients of its Icon investment accounting system, of which it has several in the Edinburgh area. In fact, two of the four firms that assisted in the development of the system are based within the city.

Another vendor with a local office is California-based Barra, also located in the New Town. Barra based its Edinburgh office on that of Edinburgh Financial Publishing, which it acquired a few years ago. As such, the office is more of a development shop than a sales support operation. The Edinburgh office is home to Barra's investment data products group.

Alan Webster, a Yorkshireman who relocated to Edinburgh after years of working for Reuters and others in London, says the benefit of the unit's Edinburgh location has been the sophistication of both the labor pool and the local client base. "There are lots of people here who understand what you're doing," he says.

"Senior management has good relations with other senior management. There's not so much protectionism with respect to their business than [there is] in other places."

Andrew P. Delaney is editor-in-chief of Waters. He wrote about Reuters Information in the last issue of Waters.

Boston by Joseph Radigan

It's not New York. But then, Boston's not the small provincial town it used to be, either. And the din of construction suggests it's getting bigger still. And while "the Hub," as it's known, is still less than one-tenth the size of the Big Apple, it's got something New York doesn't: Fidelity.

That institution now takes up several city blocks. In fact, Fidelity's so large it's played a major role regenerating Boston's investment management community. And Boston's got considerable institutional heritage. Just catch an elevator to the 24th floor of 101 Huntington Avenue. That's where an old leather-bound, dog-eared ledger lists the stocks held by the Massachusetts Investment Trust in 1924.

As ancient accounting records go, it's not all that much to look at. There are notations for five shares of General Electric at $232 and 50 shares of General Motors at $13, as well as markings for American Radiator--10 shares at $102 1/8, and Baldwin Locomotive--10 shares at $112 3/8.

But all that aging paper and ink also happen to be the first portfolio accounting system. Of course, now those systems are largely Windows-based, and Massachusetts Investment Trust is now known as MFS Investment Management.

US institutional investors manage over $6 trillion in assets. Of that total, perhaps no single city save New York can lay claim to nurturing as much of those investments (or as many vendors aimed at serving those institutions) as Boston.

In addition to Fidelity (a relatively new player in town), Beantown is virtually littered with institutional household names. In fact, a visitor could stroll past the main offices of Fidelity, Putnam, MFS, State Street Global, State Street Research (no relation), Pioneer and Colonial in barely an hour. And the people who work in Boston do.

In any given day, they're apt to run into colleagues from Fidelity, Putnam or Wellington. "It just comes with the territory," says William Smith, executive vice president and head of global operations and technology for Pioneer Funds.

THE BOSTON EXCHANGE

"There's a tremendous willingness among fund managers to exchange information and share ideas to deal with common challenges," says Joe Recomendes, senior vice president and chief information officer for MFS. "That phenomenon holds true in the technology end of the world," he says.

"We're not going to share specific solutions or specific details," Recomendes says. "But there's very much a willingness of these groups in Boston to get together periodically." In fact, several buy-side trade groups are either based in Boston or have large and active chapters there. The National Investment Company Service Association is based in Wellesley Hills, Massachusetts, about 15 miles west of Boston. And Pioneer's Smith is chairman of the technology committee of the Washington-based Investment Company Institute, the mutual fund industry's leading trade association.

Local chapters of groups like the Global Association of Risk Professionals and the Boston Society of Security Analysts are also very active, says Ron D'Vari, a senior vice president and head quantitative analyst for fixed income investments at State Street Research. They meet regularly and provide forums for participants from a large number of firms to share ideas and test new theories.

When the National Securities Clearing Corp. automated mutual fund processing with its Fundserv system 15 years ago, the development was largely led by Boston companies. One of the reasons Fundserv was a product of the Boston market was the level of cooperation among the companies there. Even today, Recomendes says, buy-side technologists will get together to share ideas and discuss common problems.

As it turns out, Boston's heavy buy-side population has also bred a pretty long list of financial technology service providers, including Thomson Financial Services, and a whole host of trade order management vendors. They include Charles Rivers Development, Decalog, DST International, Eze Castle Consulting, Longview Group and Merrin (now owned by The MacGregor Group).

In fact, if Boston has a disadvantage, "it would be because of the tremendously tight labor market," says Recomendes. "But then, I don't think it gets much better anywhere else," he adds.

TALENT SEARCH

The view that it's tough to find, and keep, good technology professionals is one that Recomendes shares with executives at other Boston-based institutions. Easton Ragsdale, a senior vice president at State Street Research and the head quantitative analyst for equities, says, "Being in Boston is a double-edged sword. It's not hard for someone to find a job in the same bank of elevators in this town." And Ragsdale isn't exaggerating. State Street shares its One Financial Center office tower with rival money managers Loomis Sayles & Co., Colonial Management Associates and Standish Ayer & Wood.

But proximity also breeds competition. And that means everyone in the investment business always keeps one eye on Fidelity. "Fidelity gets a lot of attention," says Andrea Mercier, vice president and chief technology officer for John Hancock Advisors. "Everybody knows someone who either works there or has worked there."

"Fidelity is my big brother. I live in the same house as him, so there will be an effort to keep up," says Smith. "But clearly Fidelity is out front. [Chairman] Ned Johnson has always said Fidelity will be a leader in customer service, and they spend huge sums of money on it," he adds. "We get the Boston Globe every day, we read about them. The mutual fund companies out in California don't see that."

Those aiming for jobs in financial technology also pay close attention. One Boston systems integrator referred me to a billboard Fidelity had erected on a local highway, which he called a giant classified ad, seeking engineers and software developers with an interest in a career in financial technology. The integrator says legions of technologists signed contracts with the company. A Fidelity spokesperson was unable to provide any details on how many people were hired as a result of its billboard.

And while Fidelity certainly does its share of recruiting, it's also planted many, many acorns. In fact, both Jeff Parker and Jody Morse left their posts as fixed income managers at Fidelity to start a little fixed income analysis service called Technical Data.

"We were basically giving technical advice and statistics on the bond markets over Telerate," says Morse, who is now the director of marketing and business development for Thomson Financial Software Solutions. Meanwhile, IBM had just started pushing personal computers. Suddenly Morse and Parker were selling bond data and analytics via Telerate and IBM PCs for investment software.

"We came out with software that ran on PCs," Morse says. "They were single-user deal calculation programs and bond swap analyzers. Then we built a suite for portfolio management that was all fixed income oriented, because Tech Data was fixed income-oriented."

1984

In 1984, Tech Data bought Business Research, which had two units that distributed sell-side research: First Call and Investext. A couple of years earlier they had developed the first version of the Portia portfolio management system.

In 1986, Tech Data was bought by Toronto-based Thomson Corp. Thomson had sort of fallen into the financial software and market data businesses by accident, Morse says, when one of its US acquisitions included Autex, the supplier of indications of interest data for the equities market. And though Thomson didn't see how it fit into its newspaper operations, it couldn't find a buyer for it, either.

Now Thomson is something of the Fidelity of financial services vendors, with some 28,000 employees.

FOUR-POINT HARMONY

And just like the Boston money managers they serve, the vendors form their own pretty tight community. For example, the Four Point Channel neighborhood where Thomson is based is just a short walk from the financial district, which is on the other side of the waterway from which the neighborhood gets its name. The neighborhood, which is now a collection of aging buildings that once housed textile mills, also houses the US headquarters for one of Thomson's competitors, DST International.

But the Four Point Channel area is also home to graphic artists, entrepreneurs, software developers and systems integrators. One of these young firms, Solutions Atlantic, was founded 18 months ago by Kevin Samborn and two partners, Mitchell Grees and Jim Fournier. The two are banging out Unix code on a contract basis but have identified buy-side firms as a healthy customer base, simply because so many of them are nearby.

Four Point Channel is hardly the region's only home for buy-side technology suppliers. If you leave the neighborhood and take the "T" (Masschusetts Bay Transportation Authority) for the 20-minute ride from South Station to Harvard Square, you'll soon find yourself at the offices of Story Street Partners, a 20-person Web-design firm founded three years ago by Tim Duncan. The company is now working with First Call on custom Web portals for buy- and sell-side clients.

Over in the Back Bay, a few blocks from MFS's offices, is Olmstead Associates, a consulting firm that's regularly called in for system evaluation, consulting and training by many buy-side firms. It may not be absolutely imperative that each company be based in Boston, but both firms acknowledge that there are few locales that could give them so many opportunities to reach their clients.

Duncan says, "Next to Silicon Valley, the local Internet economy is the largest in the country, but it doesn't get the same press." What matters most to Duncan is the proximity that Boston gives him to his customers. "Between here and the Hudson River are 80 percent of my potential customers," he says. "What we're good at is understanding how the people who use our technology do their jobs. Our value to our customers grows exponentially as we learn more about their needs."

Ironically, investment management is being transformed by technology that threatens to make location all but superfluous. And while officials debate the potential impact of the Internet on regional centers like, well, Boston, universities like Harvard and MIT will likely keep Boston's financial firms and the vendors that serve them stocked with fresh talent. "The biggest thing that helps is the connection with the institutes of higher learning," Pioneer's Smith says.

Those institutions have also helped Boston develop as a major technology center above and beyond the financial community. In fact, some suggest suburbs like Concord will one day rival suburbs like Palo Alto. And that, in turn, may well breed the next regeneration of financial services firms.

Joseph Radigan is editor of Investment Management Technology. He wrote about linking portfolio management and trade order management systems in the last issue of Waters.