By Chris Kentouris

June 19, 2006 - Hedge fund IT shop Paladyne Systems has signed its first prime brokerage client, Credit Suisse, whose customers will have access on a private-label basis to as many as six Paladyne products to manage their relationships with the investment bank as well as additional prime brokers.

"Many hedge funds perceive they are locked into a single prime broker relationship due to technology," said Sameer Shalaby, CEO of New York-based Paladyne. "The Credit Suisse-Paladyne solution frees them to be independent of any one prime broker."

Shalaby co-founded Paladyne in July 2005 and acquired its technology from a multibillion-dollar, multistrategy hedge fund widely believed to be Alexandra Investment Management in New York. Prior to founding Paladyne, Shalaby was CEO of San Jose, Calif.-based Cogency Software, a hedge fund data aggregation and reporting software company.

Paladyne's hosted services--used by four hedge fund administrators--include Portfolio Master for order management and allocation, portfolio management and performance tracking; Security Master, a repository and distribution engine with real-time updates and corporate action alerts; Price Master, which automates collection, storage and analysis of prices and market data from third-party sources; Analytics Master, which provides portfolio analytics, data aggregation and custom reporting tools; and Client Master, which handles client relationship management and reporting.

Portfolio Master allows Credit Suisse's hedge fund clients to electronically route their orders to prime brokers besides Credit Suisse. But Credit Suisse can also benefit: It hopes that clients of any rivals also direct some of their trading traffic to Credit Suisse, whose offerings include the Advanced Execution Services platform.

Credit Suisse does not disclose the size of its business, but a recent research report by Sanford C. Bernstein & Co. analyst Brad Hintz listed the firm among a number of newcomers eager to take market share away from dominant prime brokerages Morgan Stanley, Goldman Sachs & Co. and Bear Stearns & Co.

"As equity trading commissions have spiraled down, prime brokerage has been identified as a solution to the declining profitability of Wall Street's institutional equity divisions," wrote Hintz. However, hedge funds increasingly play "one service provider against another," which puts pressure on profit margins.

Hedge fund managers are increasing the number of prime brokers they use as they diversify their trading strategies and leverage each brokerage's strengths. The Paladyne solution offers hedge fund managers the advantage of a best-of-breed offering across the prime brokerage industry without incurring the build-out costs.

With software and hardware provided on a hosted, rather than self-managed, basis, Credit Suisse's hedge fund clients can keep technology spending in check while having access to a complete infrastructure to support major business functions including order management, accounting and real-time profit- and-loss reporting. Hedge funds that route their orders to Credit Suisse can use Paladyne to manage their accounts through a single portal operated by Paladyne instead of multiple portals run by Credit Suisse.

"Our strategy is to meet the current and emerging needs of the hedge fund industry," said Philip Vasan, managing director and head of prime services at Credit Suisse. "Paladyne's fully hosted technology solution will enable Credit Suisse to provide our clients the first out-of-the-box technology that integrates front-, middle- and back-office capabilities."

Unlike some of its competitors, Credit Suisse does not have a fund administration or middle- and back-office outsourcing business along with its prime services but could build these capabilities using Paladyne products. At the very least, Price Master and Analytics Master expand Credit Suisse's offerings into the middle office.

Paladyne, said Shalaby, is working to expand its offering in a "co-development" arrangement with Credit Suisse. As a result, the self-funded Paladyne can avoid having to seek additional, external capital to develop new technology. And Paladyne will retain the intellectual property rights.

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