COOConnect Editorial: Interview with Tony Gau, CEO of TG OPTIMA

FeatureSell Side Features
01 Sep, 2011

New York-based technology vendor TG OPTIMA has launched a software application that aims to improve the speed and efficiency of interactions between dealers at fund management firms and their execution counterparts at investment banks. The new product, called Investment Optimizer, is designed to ensure that the implementation of an investment decision is as close to the intention of the fund manager as possible. COOConnect spoke to Tony Gau, chief executive officer of TG Optima, about what the product can do for hedge funds.

COO: How does Investment Optimizer work?

Gau: Investment decisions, however clever in theory, have to be implemented in real markets. Despite the huge improvements in trading analytics and technology, there is still a large risk of failing to implement a decision in the right volume at the right price. Optimizer provides buy-side dealers with tools that they can add to their existing order management, portfolio management and transaction cost analysis systems to optimise transaction costs and asset prices.

COO: Is it hard to use?

Gau: No. We have designed it with a user-friendly interface. Because both the dealers’ and traders’ data inputs are kept in a local proprietary database, investment decisions can be executed and reported within a matter of minutes.

COO: What types of fund manager is Optimizer aimed at?

Gau: Hedge funds are natural users. They face large transaction costs because of the volume of their trading and the frequency with which they re-balance their portfolios. Our product allows them to better manage costs, which in turn helps them target and exploit alpha, reduce negative returns, and so adhere to their investment strategy more successfully.

COO: Is Optimizer available now?

Gau: Currently, the research version is being beta tested by an asset management firm in New York. The firm is using the product to see if it can help them execute faster by bringing data from disparate sources together more quickly. We are offering fund managers a 30-day complimentary trial. Any manager who wants one should go to and click on “Request Free Trial.”

COO: It is surprising that executing brokers have not developed this technology themselves. Is there something sinister about the fact executing brokers are not interested in making the execution process more efficient?

Gau: No. Traders understand as well as dealers that execution is a team effort, but both have yet to find a system that is trustworthy and comfortable for each side to use. They each have their own measures of success and their own specific concerns, such as information protection, idea quantification, plan generation, and data integration.

COO: Isn’t that just another way of saying that each side is seeking to exploit the other?

Gau: No. I am saying that dealers and traders are both working on separate platforms, which are linked by a common infrastructure. Even though the work flow seems to operate in an automated way, the original investment ideas tend not to pass through that infrastructure effectively. In effect, information is lost or altered along the way, so the investment decision is implemented less effectively. That leads to loss of alpha, increased transaction costs, and unanticipated risk. If fund managers and executing brokers are not working together effectively it damages performance, and will eventually lead to a loss of capital to competitors. There are actually ways to measure these costs, through transaction cost analyses that evaluate the expected market impact pre-trade and the actual market impact post-trade.

COO: You mentioned information loss, as opposed to information leakage, which implies a technical rather than a commercial problem, which seems counter-intuitive in the digital age. What exactly is the difficulty in transferring information?

Gau: In a perfect world, they would not have such issues, and in reality they do not encounter many problems maintaining communication, as opposed to accurate and prompt information exchange. The issues lie in the quality of the information being exchanged. If the investment portfolio and trade list are small, the task of making sure the executing broker understands and implements the trading idea is relatively easy, since the dealer can get on the phone. But when they grow, and the environment becomes increasingly complex and fast-paced, it becomes nearly impossible to transmit information manually.

COO: Is that what Optimizer does – replace a manual process?

Gau: Yes and no. Technology has previously assisted in the connection of dealers’ OMS systems and traders’ EMS systems, but our technology facilitates the transfer of information about investment decisions between the two. But this is not just a question of automating a manual process. In current markets, when volatility is high and liquidity is low, Optimizer gives fund managers a competitive edge in securing the volume they want at the price their investment portfolio demands. It does that by better integrating the investment decision and the trading strategy. We aim to help dealers build the ideal portfolio by integrating best execution into their implementation of their decisions. That obviously increases the level of automation in the investment process, but that is not the primary goal. The real benefits are better prices and tighter control of risk, which lead to improved investment performance.