Investment software sales are increasing, driven by the U.S. bull market and qualitative, bottom-up money managers adopting technology.
The bull market, besides increasing manager revenues and business confidence, has given some managers large amounts of soft-dollar commissions to use to buy investment technology.
Some sales are increasing at the rate of 10% to 25% year, software vendors report.
New money management firms are being created by investors who have grown confident by the bull market. New startups typically need portfolio accounting and information systems.
Jack Griffin, vice president of marketing with Advent Inc., San Francisco, estimated phone calls requesting licensing have been 20% above normal over the last 18 months. Advent makes Axys, a widely used portfolio accounting system.
About a year ago, Artisan Partners Ltd., a Milwaukee money management firm, was formed. Artisan purchased a license to use Axys and Moxie, Advent's trading system. Artisan also has licensed pricing and news services from Reuters and data services from FirstCall, FactSet and I/B/E/S.
A strong equity market was part of the reason for starting Artisan Partners, said John Blaser, chief financial officer.
"A bull market gives an individual money manager confidence to step out and start a firm," he said.
The potential for complex analytical systems is huge. It includes about 350 managers with yearly allocations of about $70 million to spend on technology.
The bull market also has meant wealthier money managers with more money to spend on technology. And along with the rise in the market, the number of trades has been rising.
Many managers receive at least a portion of their fees based on assets under management. As the equity market rises, their assets and fees increase.
"Sales are up about 25% last year, and I think to some degree that's because the market is good. People in the investment management business have more money to spend," said Ed Kahn, a senior vice president in charge of marketing at I/B/E/S Inc., New York, an electronic service that collects forecasts for corporate earnings estimates from approximately 6,000 research analysts at more than 600 brokerage and investment houses.
Some money managers use soft-dollar accounts to pay for analytical and data systems.
Paul Green, manager of strategic marketing at the investment consulting firm BARRA Inc., Berkeley, Calif., said managers using soft dollars are licensing BARRA products at a rate high enough to contribute substantially to the firm's 20% to 25% annual growth rate on system sales.
Soft-dollar commissions or commission rebates tend to increase with the volumes of shares traded, and exchange volume has been setting records.
And even if the bull market ends, some information technology sellers believe the number of shares traded will remain high.
It appears more money managers are requesting that soft dollars be used to license electronic information systems, said Henry Tang, in charge of soft dollars accounts at the brokerage firm Jefferies & Co, New York. But Mr. Tang said he could not quantify a figure because the brokerage doesn't measure how many soft dollars are spent for electronic information.
The growing size of soft-dollar accounts appears to be increasing business at Security APL Inc., Jersey City, N.J. Ken Bachulis, director of marketing at Security APL, said a customer recently called, saying: "I have got a lot of soft dollars to spend."
Security APL, which designs portfolio management systems, won 22 new accounts in 1995, up from 15 in a typical year.
OneSource Information Services, Cambridge, Mass., an electronic business and financial information source, has seen an 8% to 10% growth in business coming from clients paying with soft dollars, said Frank Hermes, general managers for the global investment management department.
"I would speculate it is because (money mangers) have more soft dollars to throw around," he said.
About half of OneSource's growth is coming from existing clients who are seeking additional services, said Mr. Hermes.
There also is a shift in who is using the soft dollars to buy risk management systems. Qualitative managers who use fundamental research are increasingly using soft dollars to license risk management systems, said Mr. Green.
Many of the managers once regarded the mathematical models in risk management systems as arcane black boxes and tended to avoid them.
But now pension fund executives are pressing managers to improve their investment operation and license the investment tools, Mr. Green believes.
Trying to keep abreast of technology was a key reason Sterling Capital Management, Charlotte, N.C., decided to license a new portfolio management system, network its computers and consider using Instinet's service.
Sterling recently licensed PAM for Securities, a portfolio accounting system from Princeton Financial Systems, Princeton, N.J. It is considering using Instinet to get better trade executions, a staffer there said.