The founders of Decameron Technologies faced an interesting challenge—they wanted to capture their professional experience with complex fixed income portfolios and turn it into a saleable solution for both buy-side and sell-side firms. The group has decades of combined experience with fixed-income securities, built from working at major quantitative hedge funds as well as Goldman Sachs, Morgan Stanley, and other top banks and asset managers. As a result, there are few, if any, teams better positioned to really understand how fixed income risk and pricing models work and what they can and cannot do. But how to get this to market quickly and at the necessary scale?

Exploding Need for Practical off-the-Shelf Solutions

For large investment managers, macro trends of outsourcing and increasing regulatory burdens are compressing margins and narrowing the focus of internal IT resources. This has built up significant demand for sophisticated, high-quality, off-the-shelf solutions that can operate at enterprise scale. One of the areas of acute need is the upcoming discontinuation of LIBOR and related indices. Decameron’s high quality RFR curves and scenario analytics are designed to integrate seamlessly with clients’ core systems, be it Excel or cloud-based platforms such as Beacon. A more complex example is the universe of fixed income exchange-traded funds (ETFs), which has grown substantially in asset value over the past decade. While these products may trade on a stock exchange, the underlying basket of securities often has little or no liquidity. Robust analytics are needed to effectively price, track, trade, and arbitrage these products. But few firms have the resources to build these toolsin-house, which typically take a team of PhDs several years of initial development, plus ongoing maintenance and updates.

Working With Top Models

Decameron’s team includes not just quants but also former portfolio managers and traders with practical experience and well-developed intuition about when and how analytical models work, and how to derive value from them. Even the best models are only as good as the input assumptions and data that you feed them. To be useful in rapidly changing markets they must be dynamic enough to reflect paradigm changes when they happen. And while a good model will tell you whether a security is trading rich or cheap, it is ultimately up to a human being to decide what to do with that information. As Ksusha McCormick, Decameron’s CEO and Co-Founder said, “Models provide state of the art tools for the surgeon, but they will not and should not do the surgery for you.” Decameron’s business objective is to deliver a strong foundation for thoughtful, sophisticated fixed-income investment managers, so that these firms can focus on their optimal value add or competitive advantage, and identify what they need to spend their internal resources on.

Partnering With Beacon Platform

Several of Decameron’s founders had crossed paths with Beacon’s founders earlier in their careers and were watching what Beacon was doing. They quickly realized that the core technologies they needed had evolved to the point where an off-the-shelf solution was quite feasible. Cloud computing, agile development processes, and modern data science libraries were being adopted by even the most conservative banks and financial institutions.

The mathematical ideas that Beacon is built on, and how quickly they scale, are essential for Decameron’s success. Large scale development can get messy very quickly, spawning lots of silos and making it difficult to collaborate. Instead of having to reinvent the wheel of cloud infrastructure, rapid development environments, core financial models, and sophisticated data science tools, they can leverage what Beacon has built and focus on their own areas of expertise and competitive advantage. Using Beacon Platform’s elastic compute and storage capabilities helps keep fixed costs under control and their own IT department smaller. Beacon’s ecosystem of partners and clients are a good match for Decameron’s brand, and Decameron plans to offer its applications to Beacon enterprise clients when the third-party app store launches later this year.

Building What They Know

Like Beacon itself, Decameron strives to succeed by building what they know and buying what they can, to the ultimate benefit of their clients. Building on Beacon enables them to hit fast forward on their time to market, getting their practical, intuitive, and user-friendly analytics in front of clients much sooner. From index manufacturing and scenario analysis to hedge construction, Decameron’s battle-tested models are applicable to a broad spectrum of pricing and risk challenges. Beacon’s agile, state-of-the-art infrastructure allows them to quickly adapt their capabilities to different applications and customize them for evolving client needs.