The investment software business is booming, as vendors transform once complicated and austere analytical programs into Windows programs that are comparatively easy to use.
Everyone in institutional investing is expected to benefit as portfolio managers get new tools to diagnose and deal with the hidden risks in multibillion-dollar pools of assets.
Evidence of the boom:
On Oct. 30, BARRA Inc., Berkeley, Calif., a leading supplier of analytic investment software, reported a 90% earnings increase for the second quarter of 1995. Sales of new Windows-based programs, as well as concerns about the need for more risk controls, have contributed to that increase, said Paul Green, manager of strategic marketing at BARRA. The new products and the risk concerns of clients have boosted BARRA's client roster to 850 from 650 a few months ago, Mr. Green said.
Another maker of highly sophisticated analytical software, Capital Management Sciences, Santa Monica, Calif., has seen more than a 30% growth in software sales this year.
Wilshire Associates, Santa Monica, Calif., another software producer, has just signed its 37th client for Mentor, a suite of Windows compatible programs, after only five months of marketing.
Other software vendors also report rising sales and significant interest in their new software.
Because of the new Windows-based applications, software investment tools have "moved out of the back room (of financial institutions) and onto the sales desk," said Dave Montgomery, a managing director at Ibbotson Associates , Chicago, another software provider.
The new versions can be understood, even operated, by administrators, client relations officers, compliance officers and marketing personnel, according to the developers and some money managers.
Helping spur new software sales is BARRA's new Aegis system, a suite of Windows-compatible equity products for the U.S., U.K. and Japanese markets. In addition, the beta version of BARRA's Windows' Cosmos fixed-income product was scheduled for a Nov. 15 release.
A current user of the new Aegis product is the $11 billion Ohio Bureau of Worker's Compensation, Columbus.
Scott Hammond, an equity analyst there, said, "Being a Windows product, Aegis is easier to use because it is all menu driven. The previous DOS version was a slash/command product just like the old DOS version of the Lotus program. You would really have to know what you were looking for to be able to get to your final destination. You would have to know the path."
BARRA is making it a lot easier to index portfolios, said Mr. Hammond: "I work with other programs, and I think Aegis is probably the best."
Aegis is also more powerful, said Mr. Hammond. "It's a completely different product, due to the flexibility of Aegis over and above (the older BARRA programs). In the optimization areas, I can now do rebalancing very quickly, and I can limit my programs by the amount of dollars I want to do, so if I don't want excessive turnover I can limit it by dollar amount or percentage of the portfolio.
" Also, within the optimizer, I can do sector bets relative to the other sectors. You can do that (in the old program) but it was quite tedious. The way they have developed this it is very, very easy to do your sector bets."
Jim Devlin, a vice president at Mitchell Hutchins Asset Management, New York, said he is very impressed with Aegis. He said as a Windows program, the user's ability to integrate BARRA data with other Windows programs is a "very big" plus.
John Peta, a director at GT Capital Management Inc., San Francisco, has seen and used Cosmos, BARRA's other new product, for a short period and has been a serious user of BARRA's older DOS-based Globo fixed-income product.
"If a manager manages money like we do and separates the bond and currency (aspects), and evaluates them as two separate decisions like we do, Cosmos allows you to do that much more easily and with greater flexibility. That is a great enhancement," said Mr. Peta.
Laurie Adami, an executive vice president at Capital Management Sciences, expects the sales rate for the company's new products to rise even faster in the coming months.
She said about 20 calls a week are coming in to CMS from people CMS had never contacted asking about the Windows version of BondEdge and other programs.
Investment professionals who were early users of Capital Management Sciences' new BondEdge for Windows, a fixed-income portfolio analytical system, gave that system similar high marks.
The users at Van Kampen America Capital Inc., Chicago, and Keyport Life Insurance Co., Boston, praised the networking, report writing, ease of use, importing and exporting and analytical capabilities of BondEdge for Windows.
CMS provides access to 130 separate indexes for use in relative risk management. A new version of BondEdge for Windows will permit multi-tasking and faster processing in Windows 95.
Bob Raab, a senior vice president and principal at Wilshire, believes the quick interest in its Mentor product is an important portent for a whole line of analytical software tools that Wilshire is moving to Windows, from the powerful but less popular OS2 graphical software.
One of the first investment software companies to move to Windows was Ibbotson. In 1990, a harder-to-operate DOS-based version of its Asset Allocation Tools product, a portfolio optimizer, had only about 35 clients. Since Ibbotson came out with a Windows version in 1992, sales have climbed to between 700 and 1,000 users today.
Ibbotson recently came out with its fourth major release of its Windows-based Encorr asset allocation, performance measurement and statistical analysis product.
And Ibbotson has high expectations for its new Windows-based IQ Data Reader product that reads, manages and integrates a broad range of security-level financial data on CD-ROM. Data Reader will be the first product to access U.S. equity data from the Center for Research in Security Prices at the University of Chicago Graduate School of Business.
Vestek Inc., San Francisco, has put a Windows front-end on its online system of advanced investment analytics and global financial data. Older DOS-based interfaces looked "ugly," but Windows interfaces are "elegant and very intuitive," said Ralph Goldsticker, director of product development at Vestek.
But software makers don't think the release of Windows versions of their software, even with more powerful features, is the sole reason for rising sales. They say financial institutions have increased appreciation for analytical tools that can measure risk following well-publicized portfolio losses for some institutional investors.
Also, the new versions of software are more powerful, making them more attractive, and more portfolio managers today know how to use quantitative investment tools, so interest in the tools has increased for those reasons, too.
However, the Windows versions have made a difference. The older versions required users to punch in commands to get the software to perform operations. New Windows versions have drop-down menus that ask users what options they want to perform.
The older software didn't integrate easily with existing Windows software, so cutting and pasting numbers and other information out of analytical software into programs like Microsoft Corp.'s Excel spreadsheet and Word for Windows word processor, was difficult.
Some older non-Windows analytical programs didn't work as well as Windows programs on networks, and their inability to use higher levels of memory sometimes led to computer lock-ups and program crashes.
Mixing DOS-based and Windows products on a network is often difficult, and some smaller money managers lacked the computer personnel to make it work consistently. Now that Windows versions exist, smaller money management firms can more easily add powerful investment software to networks and don't need more computer personnel to fix network compatibility problems.
And, the older versions often just weren't as inviting to look at as Windows versions. "DOS-based products look so old and outdated with ancient interfaces they would send subliminal messages about the underlying analytics," said Wilshire's Mr. Raab.
The new Windows versions are not only popular in the United States, but are getting clients in Europe, too, particularly in the United Kingdom, Germany and Switzerland, according to Ibbotson's Mr. Montgomery.
