Adam Prather, principal at Solve Advisors, answers SCI's questions

Q: How and when did Solve Advisors become involved in the structured finance market?
A: Solve Advisors was formed in July by myself and three colleagues - Eugene Grinberg, Matt McCann and Gerard Nealon. We were all formerly at Red Pine Advisors, which was acquired by Houlihan Lokey last year. At our previous employer, we developed many tools, including a pricing engine with custom-made assumptions and a network that could run multiple bonds over various scenarios, as well as parsing technology.

People always talk about fundamental analysis, but price is what really drives markets. The ability to really focus on structured product prices has historically been lacking in analytics offerings. Consequently, we recognised an opportunity to help investors capture market trends without much effort - because information is placed at users' fingertips, they have the advantage of speed as well as a user friendly interface.

The main idea for our business was formed when we saw competitors' products, which hadn't really adapted to make the lives of users easier. Nor had they advanced the technology in their offerings for a period of several years, combined with very expensive price points. Our goal is to facilitate efficiency and accuracy.

Q: What are your key areas of focus today?
A: We launched SolveQuotes, our market colour parsing tool, in October. But we also work with clients to develop custom software and analytical tools, as well as provide advisory services around complex and illiquid securities valuations and litigation support.

The market has, so far, been very receptive to SolveQuotes. The tool essentially scans email messages and attachments for market colour information - who's offering the bond, price, price talk, cover and original face - and then translates it into actionable data.

If there is market action related to a bond identified in a user's portfolio, for example, a light flashes to let them know whether it is on a bid-list or has traded. A user can also search by asset class, region, CUSIP and partial deal name using the parsing tool.

Many investors receive Bloomberg blast attachments from around 40 different sources a day, in various different formats. This is obviously a large amount of information to work through in a short timeframe and so the tool helps users to organise their day and spend more time on trading.

In addition, because they know where the market is, the buy-side has comfort that they won't get 'picked off' by dealers. Dealers and buy-side alike are able to focus on trading rather than the grunt work of shuffling through messages and trying to compare bonds.

SolveQuotes also features a BWIC monitor tool, which identifies BWICs unique to the user. It allows users to click onto upcoming BWICs or to see the previous history of bonds included in them. The history can be shown for as long as the user has had emails. Underlying the tool is a securities database, with CUSIP, asset class, rating and regional information displayed amongst other data.

In terms of the advisory side of the business, the aim is to solve problems and reduce redundant processes. We're able to do this because we have tools that are scalable and we can demonstrate transparency in our modelling/valuations processes, in particular for underserved parts of the market, such as reverse mortgages and aircraft leases.

Q: Which market constituent is your main client base?
A: We work with a diverse client base, spanning hedge funds, private equity, primary and regional brokers, insurance companies, law firms, trustees and administrators.

Q: How do you differentiate yourself from your competitors?
A: We have diverse expertise in developing sophisticated financial technology and analytics, as well as in trading, hedging and modelling structured products. This blend of backgrounds allows us to build software tools that are not only technologically advanced, but are also very intuitive.

We don't have any straight competitors. Some other technology providers can set parsing expressions to capture a small universe of structured products relatively safely, but we've built 125 expressions to capture a much larger share of the market.

Similarly, other providers have separate applications, whereas SolveQuote is based on a single framework. The system is a dashboard for everything the user does. In addition, a team of 'quants' doesn't need to be hired to operate our tools.

Q: What major developments do you need/expect from the market in the future?
A: Many issues still need to be resolved on a macro level. One such issue is the shadow inventory and glut of distressed assets weighing on the market. I don't limit this to structured products, but rather sovereign debt and other asset classes.

The Fed's decision to auction US$25bn of Maiden Lane II assets, for example, sounded nice at the time. But the sheer scale of supply became concerning, especially when the new issue market hasn't even come back. It could have found a more efficient way of disposing of the assets - for instance, by refraining from setting out a pre-planned auction schedule, which created expectations of volume.

Equally, I'm not sure whether the recent increase in GSE LTV limits is the best way to help homeowners. More borrowers will be able to refinance under the expanded guidelines, but it is still done on a one-by-one basis. A more dramatic move is necessary that is quick to implement.

US$50bn of TARP funds was reserved for principal forgiveness, yet only US$2bn has been used so far. The mortgage modification process is so time-consuming that it's difficult to determine how, or indeed whether, to use the remaining TARP money.

Ultimately, the government has spent significant amounts of money on quantitative easing. But, rather than buying US Treasuries, perhaps it would be better to spend it on infrastructure projects.

CS