Vanguard: Quick, Flexible, Affordable Credit Risk Tools

May 1, 2009 — The Vanguard family of products were featured in a full-page article in the April 6 edition of Energy Metro Desk, including an interview with CEO Kevin Gerold and a detailed overview of the Vanguard advantage. The full article is quoted below, in blue:

“It’s been quite a ride for credit risk management over the past six months. Credit issues have moved to the top of everyone’s agenda as the financial crisis continues and counterparties falter. At the same time, the two big credit risk systems providers have been absorbed by even bigger companies.

But in the meantime, a third company has been quietly putting together a new and different credit risk solution, one that enables “total customer configuration,” fast (as in four to six months) implementation, relatively low cost and easy integration with a multiplicity of high-end ETRM systems. The system, Vanguard from Paragon Consulting, offers credit risk management and credit analytics to small and mid-sized companies who need a flexible system but lack the million-dollar budget, according to Paragon chief Kevin Gerold.

Paragon is fairly unyielding in its scrutiny of the competition. The front page of its Website throws down the gauntlet: “The credit risk management software business is no longer an over-priced duopoly.” Says Gerold, “There was an opportunity here.”

While not necessarily targeting companies on the same scale that TPT/ROME or Financial Objects/Temenos might – that is, really big energy companies – Paragon is setting its sights for the other 60 percent of the marketplace, that vast group who still manages counterparty credit on spreadsheets.

The company took advantage of “new technology that’s very scalable, very flexible” to target core credit risk functions, credit analytics and all the surrounding elements. “The credit analytics piece right now is very key – that’s one of the biggest driving factors (for credit risk systems purchasers), to see some of the bad things that theoretically might happen.”

The Vanguard system was built in Microsoft .NET, using the Windows Presentation Foundation. If you haven’t heard of it, it’s a highly flexible, rich client that has received major Microsoft investment. Vanguard’s back end is all Oracle. It’s Gerold’s back end of choice, but there’s an added bonus: Nearly all utilities already have an Oracle database somewhere inhouse, which keeps licensing fees down. “Our thought is there’s a lot of small companies that don’t have a million dollars to spend, but obviously have a large need.”

So what does a client get when they spend substantially less than that on Vanguard? Gerold took us through a brief demo of the system this week and we liked what we saw. A very straightforward dashboard filled with highly customizable charts and graphs along with an impressive analytics capability – think spreadsheets on steriods. That’s a good thing, since it helps customers make the transition from their traditional spreadsheet method to the Vanguard system – where they can quickly filter  and group data and run reports. “We tried to get all the controls in the system much more flexible than a lot of the typical stuff we’ve seen. You can save all sorts of configurations and widgets, and each user can have their own layout for how the dashboard looks.”

He says they wanted to get away from a design where an analyst is going into the system each morning to check out expiring contracts, collateral levels and the like. Instead, “the system is very event-driven — you can set the tolerances so it sends an email to a trader who hits 80 percent of his limits, or send distributions to contracts or the collateral department when contracts are expiring in seven days or collateral didn’t show up. You don’t have to go into the system to find out what’s going – the system tells you each day what you need to worry about,” he says. “It’s set up to send counterparty limit availability to traders each morning, so when they begin trading, they know where they are within our tolerances… It can also update credit as trades are getting done and send flashes throughout the day. It’s a lot more real-time capable.”

User configurability was a major goal for the system. “It looks like Excel but if  you want to monitor counterparties organized by type, you can group them. If you only want to view their status, you can clear all of the other data (from your customized view). Then you save that configuration – any number of them – for yourself.” In the demo, the system reacted quickly to every new configuration, and generated a professional-looking report in a matter of seconds. Every screen offers a customizable report, freeing up users to structure and generate any report they need, without waiting for the next upgrade of the software. “The customers are able to do this on the fly, save it, share it… A small shop doesn’t need eight consultants or a large onsite IT staff. This gives them that extra flexibility.” The look and feel is also highly configurable by each user.

The configurable  system  has the ability to aggregate exposures by type, which is a good thing if risk concentration keeps you up at night. “People need the basics,” he says. “When we talk to people, the biggest thing they need is accurate exposure numbers. A lot of people can’t get, day to day, an accurate picture of where their exposure lies. Step one for a lot of them is getting a system in that performs, is flexible and gets them the right number.” He says he’s surprised how many people get margin calls and have no system in place to confirm or dispute that number. “How do they know when to call the money back? They don’t have a system to say that market has now moved, it’s time to call the collateral back.”

Looking at the future, Gerold says it would be good for the market if the spotlight could be even bigger on credit than it has become recently. He said companies need to get some kind of measurement system, beyond just a spreadsheet, so they can have a clear idea where they stand. “And as for the amount of money people have to spend on these projects, people need to do more with less today. That’s challenging for the smaller shops… They are facing less money and not a lot of options.”