John T. Vaughan, CEO, MarketDataInsite December 3, 2004 An Objective Look at IT Solutions for Hedge Fund Operations

2 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Industry Overview “As the hedge fund market heats up, hedge funds are looking to technology to maintain their competitive edge” “…hedge funds will by and large avoid building these solutions in-house, however. Most solutions built in-house simply do not offer the competitive advantages of those built by professional technology vendors.” --”A Cottage Industry Goes Mainstream: Hedge Fund Technology in the Spotlight”, Celent Communications, April 21, 2004

3 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Hedge Fund Industry Choices The operating style of successful hedge funds is organize technology to serve the proprietary needs of the asset management function and to spend minimal time and money on technology for support functions. The choice between installed and “on demand” computing seems to favor “on demand” services for support functions.

4 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Division of Functions Proprietary and installed technology tend to support trading, settlement, analytics, customer reporting, compliance, risk management, financial reporting. Functions like vendor expense management, commission and soft dollar tracking, payroll and employee benefits are candidates for “on demand services”

5 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. On Demand Expense Management Opportunities Each Vendor Creates a New Challenge to Your Time and Budget Back-office Challenges of Managing Vendors Non-uniform contract terms Hard to reconcile invoices Difficult to monitor requisition processes Need to allocate costs Blurs cost transparency for users, groups of users, firm Makes it difficult to set budget Difficult to identify successes/failures of different spend strategy

6 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Hedge Fund Technology Case Study #1 Organizational Overview Large hedge fund (over 150 traders and 4 locations) Several billion in assets under management Information Technology Department based out of central location Large soft dollar user Moving away from soft dollar dependency Have been able to save significant costs through proper implementation of technology

7 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Hedge Fund Technology Case Study #1 Result Established a central point of input for all vendor management and administration for both accounting and IT Set rules & parameters for cost allocations to identify truer cost of a user, business unit and/or vendor Were able to allocate bills directly to appropriate cost center or user Received refunds from over billing Automated tools to track changes in market data environment and their expected billing ramifications Dramatically reduced administrator’s time and eliminated paperwork Challenge Lots of paper work making invoice reconciliation and paying bills manual and time consuming Accounting and Information used different software to manage technology administrating making it difficult to streamline vendor management Vendor bills were fluctuating more than usual making it difficult to verify costs Costs were loosely allocated across firm instead of correctly allocated blurring cost transparency No knowledge of contract benchmark prices Wanted to reduce expenses Overwhelming for the one administrator responsible for IT function Had Specific Goals to achieve cost transparency Solution Implement a customized database to provide a centralized location for all departments to manage and administrate vendors

8 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Case Study Example 1: Former Business Process Exhibit #2 Vendors unable to supply invoices electronically Reuters Bloomberg Dow Jones Firm must manually allocate costs and reconcile invoices Tasks Delegated ACCOUNTI NG Dept. Upload allocation to GL system and pay invoice Hedge Fund Bills are sent in-house or to soft dollar broker General Ledger/Acc ounts Payable Soft dollar Broker A Hedge Fund Soft dollar Broker D Upload and Notify Audit Reconcile Allocate Soft dollar Broker A Hedge Fund Soft dollar Broker D Payment accepted Time-intensive, prone to manual error, blurs cost transparency

9 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Case Study Example 1: New Process Exhibit #2 Vendors unable to supply invoices electronically Reuters Bloomberg Dow Jones Customized HedgeSpend database to match org structure and allocations MarketDataInsite HedgeSpend 3000 Upload and Notify Audit Reconcile Allocate IT Dept. Review Invoices paid using HedgeSpend 3000 application ACCOUNTING Dept. Upload allocation to GL system and pay invoice Hedge Fund

10 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. Hedge Fund Technology Case Study #2 Organizational Overview Start-up hedge fund with aggressive growth strategy (5 traders -70 traders in six months) Projected 4 locations within one year Unclear about Information Technology budget Prime broker to pay for some services but not all Information Technology budget all hard dollars Needed a plan of attack to make sure that the information technology, while not a priority, costs would remain minimal and cost effective Stay away from “tiered” contracts that could penalize the firm as they grow

11 ©MarketDataInsite 2004 All Rights Reserved CONFIDENTIAL - Unauthorized disclosure of data contained in this document is prohibited. IT Trends “Continuing the age-old Wall Street tradition, many buy-side organizations are playing it pennywise and pound-foolish, spending less on technology and instead attempting to offset with people power. The primary problem here is not only do they spend more, these firms expose themselves to a human capital risk due to a critical shortage of qualified personnel” --CarbonBased Consulting, Buyside IT Spending and Trends