At a basic level, electronic alpha capture is poised to become a major work flow tool forevery portfolio manager and broker-dealer to prioritize data points and opinions, pushing the most relevant ideas to the surface.

According to TABB Group in new research, "Alpha Capture: The What, Who and How Much," this tool can give portfolio managers the freedom to focus on their primary job - generating alpha. Equally important, alpha capture technology could impact how the buy side allocates commission dollars to its research providers.

Not only can this technology enable the highest conviction ideas to "bubble to the top,"says Adam Sussman, a TABB partner, head of global research and co-author with contributing analyst Kerry Massaro, but by tracking and monitoring industry performance, these systems can enable star sales people and broker-dealers to rise above their competition. In the not-so-distant future, the performance metrics within alpha capture systems could be used universally to determine which brokers get paid and how much.

Across the fund management industry, portfolio managers are overloaded with information and find it difficult to sort through the noise, converting that information into ideas to generate alpha. For their broker-dealers, who have been under pressure to perform as the number of broker relationships is decreasing, alpha capture systems do provide a new way to track idea performance and compare results of idea generators, adding performance transparency that never existed. "An objective, user-based measurement of broker-generated alpha can change the buy-side and sell-side relationship by shifting the value performance from the fuzzy logic of a 'relationship' to measurable performance," Sussman says.

On the leading edge of these partnerships in Europe is the use of "pay-for-performance" agreements that have helped brokers create an elite service for their top clients - fund managers who value and are willing to pay for alpha.

"It's easy to see how these systems, including 'pay-for-performance' agreements, can easily shift the ambiguous and often subjective process of allocating commissions to one that is thoroughly standardized and metrics-based," Sussman concludes. "It will likely take the industry a while to get there, but when universally adopted, a simple report generated by alpha capture systems could replace today's broker vote process."

The 19-page report with 5 exhibits defines electronic alpha capture; how these systems can be used by both the buy and sell side; the impact that performance metrics built into these systems can have on broker payment; the emergence of an elite sell-side service based on pay-for-performance; and future growth of these platforms and models. The report is based on conversations with managers of sell-side, alpha-capture businesses, trade idea management platforms and end users.