CTRM software house of the year: Allegro

Developer gained clients despite cutbacks in IT spending by energy firms

Michael Hinton, Allegro Development

Energy Risk Awards 2016

As low oil prices and sluggish Asian demand growth took their toll on the commodity sector last year, commodity trading and risk management (CTRM) software developers also felt the pain. IT budgets at many oil and gas firms fell by 20–30%, according to consultants.

Against this challenging backdrop, Allegro Development posted double-digit revenue and profitability growth in 2015. The Dallas, Texas-based software company added 20 new customers, around half of which switched to Allegro from a competitor, while the rest were first-time buyers, says Michael Hinton, Allegro's chief customer officer and senior vice-president of products and solutions.

Hinton attributes the company's success over the past 18 months to the breadth of the Allegro suite and its emphasis on physical logistics and optimisation solutions, capabilities that are currently much in demand.

"In today's environment, it is essential that firms optimise every process in the value chain from source to sales point, from physical logistics to financial hedging," says Hinton. "Companies must be able to squeeze what they can out of every margin and ensure they are not leaving money on the table."

To do this, firms must track and value molecules in real time and be able to access all the information needed to make optimal decisions around dispatch, scheduling and transportation, Hinton says. For example, if there is an unexpected outage at a refinery that pushes up product prices at a particular location, a seller of refined products needs to be able to evaluate whether it is worth re-routing a particular cargo to exploit that arbitrage opportunity. Allegro's physical logistics modules span ships, pipelines, trucks, rail and barges and covers a host of operations, including physical gas scheduling, nomination, capacity allocation and balancing, as well as power scheduling and transmission. Some modules cover very specific functionality, such as crude blending.

Interest also grew last year in Allegro's asset-modelling tools, Hinton says. "For example, the shipper on a gas pipeline may want to understand optionality in their transport contracts to optimise utilisation," he says.

Another growing need in the industry – and an area of strength for Allegro, according to Hinton – is the ability for companies to take a holistic view of their business to identify naturally offsetting hedges and positions. Allegro's Trade Strategy module allows clients to combine advanced analytics and real-time information in order to develop optimal trading strategies. Existing portfolios can be analysed in conjunction with hypothetical positions, and stress-test scenarios can be run. The module includes dashboard visualisation and tools to drill down into data with greater granularity.

Allegro's regulatory solutions are another reason customers are turning to the firm, says Hinton. Allegro offers modules that facilitate the reporting of trades required by the US Dodd-Frank Act, the European Market Infrastructure Regulation (Emir), the Regulation on Wholesale Energy Market Integrity and Transparency (Remit) and the second Markets in Financial Instruments Directive (Mifid II).

Allegro customers praise the flexibility of the firm's technology and the degree of customisation it allows. Some also commend the ability of Allegro's staff to understand their needs.

One US coal firm, which has used Allegro since 2002, downsized significantly last year amid a brutal environment for the coal sector and filed for Chapter 11 bankruptcy protection earlier this year. Left paying for surplus Allegro licences, it approached the software developer. "Allegro showed characteristic flexibility in coming up with two solutions for us: one transitory, one more permanent depending on what we wanted," says the firm's US-based risk management director. "They have been a great group to work with," he adds.

Allegro also provided a new way to deliver functionality to customers with the release of its Horizon platform in October. Previously, Allegro architecture was configured to address specific processes, but seeing that customers usually implement software one desk at a time, rather than on a process-by-process basis, Allegro re-engineered its offering.

"Horizon allows functionality to be rolled out on a desk-by-desk basis and allows the customer to purchase and install exactly what they need when they need it," Hinton explains. "For example, the gas desk can get something it needs without the power and emissions desks being interrupted. It eases the pain of an upgrade and makes for quicker deployment."

Another milestone was Allegro's June 2015 purchase of Just Commodity, a Singapore-based agriculture software firm that specialises in physical logistics. The acquisition – Allegro's first in its 32-year history – marks a change of direction for the firm. As part of its plan to triple its size over the next five to seven years, other acquisitions will follow, Hinton says.