If any class of financial-services firm should have become extinct in 2008, it's the hedge fund. Hedge funds bled $154 billion in 2008, according to Lipper Hedgeworld, with 1,500 hedge funds closing shop, as reported by The New York Times.
Amazingly, however, 659 new hedge funds launched amid this financial bloodbath, and these new hedge funds are looking to build high-performance trading platforms on the cheap, a trend that bodes well for Marketcetera.
Marketcetera is now working with the New York Stock Exchange to provide a hosted, open-source hedge fund trading platform over NYSE Technologies' Secure Financial Transaction Infrastructure (SFTI) network. According to Marketcetera CEO Graham Miller, this gives hedge funds of any size the ability to run low-latency, high-frequency trades at 10 percent of the cost of proprietary systems.
Hedge funds need to save money. Who knew?
It's important to remember that today's aren't yesterday's spendthrift hedge funds. I spent the morning with a friend who left a large financial-services firm to join a small, $250 million hedge fund in June. He represents a new demographic in the hedge fund world, one that cares about fund performance and cutting fund costs.
A lot of hedge funds still in business saw their top traders leave when the economy imploded, only to set up new funds. These new independents couldn't make money at the old firms because their performance was so underwater, it would take years to get back enough in positive gains to start cashing in on performance fees. Meanwhile, fund sizes under management began shrinking, with redemptions and fees getting slashed in the process.
This means a new breed of leaner hedge fund is rising, hedge funds that arguably could spend lavish sums on trading platforms but learned enough from the market implosion to save money wherever possible.
Marketcetera fills this need, particularly now, with its hosted offering. I've covered the company before but continue to be impressed by its speed of innovation.
The company launched Marketcetera 1.0 in January 2009, then hit version 1.5 in April 2009 (adding support for multiple traders and some key data feeds and real-time analytics), and now, in June 2009, the company's open-source trading platform is sitting on the NYSE's high-performance cloud.
Equally impressive is where the company expects to take open source next, as can be seen in this YouTube video. The proprietary-software industry serving hedge funds and other financial services companies just got a wake-up call.
Follow me on Twitter @mjasay. Perhaps if enough people follow me, I'll be able to afford to lose an investment in a hedge fund.