Buyside focus : Multi-asset trading : Gill Wadsworth

FINDING THE RIGHT FIT.

Multi-asset trading requires particular skillsets that not all traders possess. Gill Wadworth looks at the challenges in creating those desks.

Multi-asset mandates are expected to continue their upward trajectory, growing by approximately 11% per year until 2020; rising from $220bn to $373bn. Total European multi-asset mandates stood at €1.8tn last year so it is no wonder managers want a piece of the pie.

This 2017 research from consultant Spence Johnson reflects the increasing expectation from institutional investors that asset managers should be able to solve their problems holistically. There has long been a desire to move away from hiring multiple specialists and instead choose a multi-asset manager who can do the lot.

However, being a credible provider – rather than a factotum – requires the right mix of skills and experience. Asset managers know they cannot jump from being an equity or fixed income specialist to a multi-asset house overnight. They need the right faces in the shop front and the best brains out the back to deliver an effective solution.

This is demonstrated clearly in the talent war which gathered pace in the past 12 months. In June last year T. Rowe Price appointed Lowell Yura, as head of multi-asset Solutions for North America and Yoram Lustig, in the same role across Europe, the Middle East, and Africa. Yura was formerly of BMO Global Asset Management, while Lustig joined from Axa Investment Managers.

This year, Wells Fargo Asset Management has been on a hiring spree, poaching two senior multi-asset team members from Schroders in mid-February having enticed Neuberger Berman’s head of quantitative investments just two weeks earlier. Meanwhile, in March, Hermes hired Stephane Michel as senior portfolio manager to ‘build out [its] wider multi-asset credit capabilities’.

Some firms have focused on hiring wider multi-asset experience to bolster their credentials. Wells Fargo, for example, selected Schroders’ Peter Weidner and Mark Brandreth because of their ability to construct wider portfolios which focus on solving specific goals, such as wealth preservation.

Meanwhile Hermes talked of Michel’s broad fixed income experience, including trading roles, as critical to his hire. Hermes explained that Michel’s career ‘spanned a multitude of asset classes within fixed income and has included roles on the buyside and sellside’.

Nico Marai, Wells Fargo AM

 

Typically, there is a considerable amount of focus on portfolio managers as the drivers of successful multi-asset strategies, but the traders are also key. Nico Marais, president of Wells Fargo Asset Management and head of multi-asset solutions since 2017, has spent the past year building his team from five to 25 individuals. He says that successful portfolio managers must be supported by an equally credible execution team.

Matt Howell, T.RowePrice

“The client expects you to understand their problems; they want seniority and someone they respect,” adds Marais. “That is where the solutions people – the architects, the conductors – come into play. Alongside them they need the builders or the orchestra to execute on their behalf.”

Specialist or generalist

The question facing many asset managers as they have built their multi-asset trading desk is whether to build teams of specialists or generalists. Specialists may deliver best execution in a particular asset class but could lack the holistic view a multi-asset desk needs. Yet a generalist may – to revert to the earlier cliché – be a jack of all trades and master of none.

There is no right answer, according to Matt Howell, head of derivatives and multi-asset trading solutions at T. Rowe Price. However, he says that whether an investment house employs generalists or specialists usually reflects the reason the multi-asset desk exists in the first place.

“Whether you have specialist or generalist traders usually depends on what the multi-asset desk is trying to achieve,” Howell says.

He explains that some investment managers have implemented multi-asset trading as a means of reducing costs because it is often more efficient to push trades through one centralised desk. In this case, Howell says it is more likely the desk would be staffed by generalists.

Technological advances in the operating systems used by trading desks make it far easier for generalist to trade across asset classes. This can be useful in allowing smaller desks to pick up large volumes of work. And asset managers may also find they limit trader churn if individuals can expand their skill sets to include additional asset classes.

Yet the generalist approach may not be suitable to investment houses looking to respond to investors’ specific objectives. “If you are looking to address a business need in meeting client demand for multi-asset solutions, then you are more likely to ensure that you are elevating and growing existing talent which takes you down the specialist route,” says Howell.

Mark Denny, Investec

Investec Asset Management has been growing its multi-asset team for 15 years. As the desk first started to grow ‘rapidly and organically’ Mark Denny, head of trading at Investec, says it helped for the ‘relatively small desk’ to wear multiple hats. However, to meet client demand, he recently divided the fixed income and equity desks.

“Until two years ago I was running a desk as a multi-asset function but given the growth we have had, I have split the desk into broadly fixed income and equities.”

The same is true of T. Rowe Price where the firm has invested in building specialist knowledge among individual traders. However, the teams also understand multi-asset as a holistic strategy.

Howell says, “We take a holistic view across all the traders and the investment teams to ensure that anyone with a multi-asset view can get the best from the credit, rates, FX teams and equity teams and compare them and think about how they might choose to do an implementation.”

The right skillsets

Irrespective of whether you build a generalist or specialist multi-asset trading team, there are clear skills individuals must have. As the war for multi-asset talent continues so investment managers might have their work cut out finding both portfolio managers and traders with the requisite skills.

Marais says it is challenging recruiting the people with the high levels of skills he requires and concedes that the senior hires made this year were realised thanks to his personal network. “It is very hard to find the right people. The type of talent I look for have quant skills and they can all code. I want super smart people with actuarial and consulting backgrounds, too.”

Denny agrees about the importance of computer science and data management skills. “There has been a shift in the type of skills that we are looking for,” he adds. It’s not the old barrow boy traders today. A lot of people have a computer science ability, they know about coding because that is the new world we are in.”

Denny expects traders to understand the ‘pipework of electronic trading’, and as MiFID II beds in this year, the importance of transparency and operating within tight parameters across all asset classes is paramount. “Trading desks need people who are tuned into the electronic trading environment. This is an important skill that is not always easy to find,” he adds.

Whether a trader on a multi-asset desk is a generalist or a specialist, they certainly need to have a particular skillset. And while securing best execution, all traders need to understand what their multi-asset strategies are trying to achieve. The best people will appreciate how they can feed into other desks, and back to portfolio managers, to get more from the multi-asset solutions. If those traders exist, they will be in great demand.

©BestExecution 2018

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