Enfusion, backed by Zell and Zuckerberg, has $1.5 billion valuation

The deal also demonstrates the important but often overlooked role that Chicago’s financial markets play in the city’s technology sector. Enfusion is the latest in a line of successful companies stretching back to digital-trading pioneer Archipelago Holdings, founded here in the mid-1990s. On Jan. 21, Chicago-based online options-trading company Tastytrade said it would be acquired for $1 billion in cash and stock.

Founded by Citadel alums, Enfusion quietly became a top provider of hedge fund software over the past 15 years. About 500 customers use the company’s “hedge fund in a box” software package, which includes all the applications needed to run a hedge fund.

Revenue is estimated to have grown at an annual pace of about 40 percent during the past several years to $100 million. Headcount nearly doubled last year to 500, including 150 in Chicago.

“They fly under the radar,” says Jeremie Bacon, who led a Chicago-based tech company that sold software to hedge funds. “They’re in part of a market that no one knows about unless you’re in the industry. They’re the leader in their space.”

Enfusion was founded in 2006 by two Citadel veterans, Tarek Hammoud and Stephen Malherbe, and Scott Werner, who worked at Lisle-based Ritchie Capital Management. It started with portfolio-management software but kept adding functions, from general accounting to trade execution and order management. Enfusion built the software as a cloud offering, designed to run on remote computers instead of the customers’ hardware.

“Enfusion really decided to be a new technology provider, front to back, selling against incumbents with new capabilities,” says Chris Pedone, a director in New York at investment-banking firm Houlihan Lokey. “They’re more mature than the upstarts but not quite the incumbents.”

Hedge funds and other asset managers have become more dependent on data. Large firms like Chicago-based giant Citadel tend to build their own software, but smaller hedge funds buy it. Enfusion says it’s the only company offering such a comprehensive software product that’s also cloud-based in a fragmented market of individual software products. It also offers outsourced back-office services.

Enfusion competes in the same market as Eze Software and Charles River, both in the Boston area, and smaller firms such as Nirvana Systems.

But Enfusion CEO Thomas Kim says “there’s no one offering a cloud-native, integrated framework that hasn’t been Frankensteined together from other solutions.”

Enfusion says its software can cut operating costs for tasks such as trade execution by half and can be deployed much faster than older technology. “COVID-19 has been a big eye-opener for the capital markets and asset-management community in terms of how it deals with disruption and how their technology is incapable of handling that kind of disruption and pace of change,” Kim says.

As Enfusion has signed up more clients in the U.S., it has also moved aggressively overseas. The company had triple-digit growth in Asia last year. Overall, the number of new clients rose 30 percent in the third quarter from a year earlier.

“We want to grow our presence around the world exponentially,” says Kim, predicting hiring will accelerate this year.

Kim joined Enfusion as CEO last year from financial tech firm Tassat, succeeding Hammoud, who became executive chairman. Kim previously was a senior executive at Bridgewater Associates, one of the world’s largest hedge funds, and has worked in trading technology for more than two decades.

“He’s had the 360 view of what customers want, working for hedge funds and vendors,” says Julie Menacho, a financial-tech veteran who worked with Kim at Chicago-based RealTick, which was acquired by Lehman Bros. in the mid-2000s.

The industry is hot, and it’s undergone a wave of acquisitions. Eze Software had $280 million in revenue and 1,000 employees when it was acquired two years ago by SS&C Technologies for about $1.5 billion. State Street bought Charles River, which had more than $300 million in revenue, for $2.6 billion in 2018.

Iconiq, which led a $125 million investment in Chicago-based software maker Relativity six years ago, is known as a source of patient, founder-friendly capital. The firm declines to comment on its investment in Enfusion.

“Enfusion has a broad platform,” Pedone says. “How do they grow from here? I’d expect them to be active on the acquisition front.” Kim says the company is profitable and “an IPO is a thing we’re thinking about. It’s something that’s available to us as a path. Our priority is to our clients and growing our business.”