IT'S GOOD TO TALK: Betsy Anderson of Ignis Asset Management talks to Nicholas Pratt about the advantages of building a dealing desk from scratch, the success of Mifid and the importance of understanding a fund manager's real intentions
Betsy Anderson is big on communication. Not only does this make her an easy person to interview, it is also hugely beneficial to her role as the head of centralised dealing at Glasgow-based Ignis Asset Management. But then communication seems to be big with most dealing heads – not only with their own managers and brokers but with their peers. “I sit on a number of advisory boards and buy-side dealing peer groups and the whole ethos is to educate and be educated. We very willingly share experiences, views and thoughts on systems and processes because we can only future proof ourselves if we know what the future holds and we can only tell where we are as a dealing desk if we have a reference point.”
The roots of Ignis Asset Management can be traced back to 1899 and the Glasgow-based Foreman and Staff Mutual Benefit Society. In the meantime, the company has been through several name changes (Britannic and Pearl Group to name two) and grown in size – it currently has £72bn (€85.3bn) of assets under management. Anderson joined the company in 1999 when she was recruited to establish the firm’s first dealing desk. In the previous 100 years, the firm’s fund managers had been left to do their own trading. By setting up a centralised dealing desk, the idea was that they would be able to concentrate on the actual investment decisions and the dealing desk would implement those decisions.
“From a technology perspective it was a completely greenfield site which was fantastic,” says Anderson. There were no ill-fitting or out-of-step legacy systems that needed to be integrated, leaving Anderson free to embark on a three-month fact-finding mission, consulting with fellow heads of dealing in Scotland and London, in search of the right order management system for the business. “We chose Longview’s order management system and we still have it today. It’s fair to say that it has grown and developed with us,” says Anderson.
The three-man dealing desk started gradually, starting with UK-only trading in 2000 before adding Europe, the US, the Far East and the emerging markets, as well as the addition of an FX unit. Now, ten years on and several name changes later, the firm has £72bn of assets under management and the desk has grown from three to seven. Furthermore, the FX unit has performed successfully enough to be spun off as a five-man team of its own.
A significant change came in 2005 when Ignis launched a new investment boutique strategy that involved recruiting proprietary investment teams as part of a joint venture split evenly between Ignis and the proprietary teams. The first two to be launched were European equity specialists Argonaut and UK equity specialists Cartesian, followed by an emerging market boutique.
“It was a way to attract star managers and talent. They could set up in their own right as a boutique but they would get all the support in terms of back-office systems, risk management and the dealing desk,” says Anderson. “It is quite an unusual strategy but it has been very successful for us. The fact that we have a centralised system that is very plug and play means that it is the same order management system, the same compliance system, the same pre-trade risk analysis for every team in both London and Glasgow. It is very standardised and there is a very robust core structure. That consistency of approach makes us very attractive to these teams and it makes it easier for us to both pick these teams up and also plug them in.”
The joint venture has given Ignis a diverse range of fund types as well as a mix of managers, blending the star manager types with the more traditional managers from the firm’s assurance background. So how easy is it for a dealing desk to cater for these different types? “The skill of the trading desk is that the dealers are used to tailoring the service to the investment style of each manager. We know whether we need to go out and source liquidity quietly for a manager that wants to take a long holding position. And we can also rise to the occasion when we have an alpha seeking manager that wants to trade yesterday in an obscure Scandinavian stock.”
Anderson says that she expected more resistance from the fund managers when she first arrived and declared that all dealing now fell into her domain and the line was not to be crossed. But, says Anderson, the managers soon realised that the dealing desk was ostensibly another tool for them to use and that the dealers could do a far better job of executing their strategies then they could themselves. Despite the clear segregation of duties and respective domains, Anderson prides her team on its ability to get to the heart of an investment manager’s strategy, something which comes from constant communication. So despite keeping pace with all the technology developments – from order management systems to smart-order routing to algorithmic trading – the consistent element has been an ongoing, high-touch interaction with the fund managers.
“One of our core skills is the ability to get to the heart of a manager’s investment decision and that’s where we feel we add more value. Clarity of instruction is how we feel we get best execution. We can use the technology to execute faster, to trade in more volume and to access more liquidity but it all starts from that initial discussion. Two managers with the same stock can have very different trading styles and from that initial discussion we can tell if they are a ‘happy holder’ or if they want to drop the stock as soon as possible.”
Anderson says that the partnership with the managers has also influenced the dealers relationships with their brokers. “We put an awful lot of pressure on ourselves to convey our expectation when we place any orders with a broker. That clarity of instruction and expectation ensures best execution.”
The relationship between brokers and buy-side dealers has been complicated to a degree by the advancements in trading technology and the deregulating effect of the Markets in Financial Instruments Directive (Mifid). With so many execution options available, it could be easy to get swamped in all the various services that brokers now offer in terms of algorithms and smart order routers (Sors). So when Ignis came to selecting a smart-order router in 2009, Anderson ensured there was a typically rigorous selection process in place.
“We came to the party relatively late in terms of algorithms but this held us in good stead when it came to smart-order routing because we did not have any legacy algorithms and we were able to be very clear about what we wanted to achieve from the smart-order routing. We drew up a matrix of 50 questions that covered everything you would hope to ask a broker when determining just how smart their order routers were.” The questionnaire was sent out to 15 brokers and a shortlist of eight was drawn up before five were eventually selected.
By the end of June, Anderson expects to have been using the Sors long enough to determine whether the selected five have met their expectations. The findings will then be fed back into the matrix as part of an ongoing review process that will also be included in the general broker reviews. “This means there is a vested interest for the brokers that make it onto that selection of Sors to stay there because it will inevitably have an impact on the overall review of that broker.”
On the list
The list is slightly unusual in that it contains two execution-only brokers in ITG and Instinet alongside the more established UBS and Merrill Lynch (now Bank of America) and another niche firm Macquarie because of its links to the Asia Pacific market. “We weren’t surprised by those that made it onto the list but some of the brokers that we didn’t pick were surprised as they have traditionally found themselves on everyone’s list. But we were very clear about the criteria and consistent in our approach so there was no room for ambiguity or emotional debate. It was an easy decision to make even if it wasn’t an easy decision for some brokers to hear.”
This is not to say that these brokers should give up any hope of making it onto the Ignis shortlist. “The review is an ongoing process and that original assessment was based on our needs at the time. For example, one of the considerations we made was whether some of the algorithms were too sophisticated for our current needs. I would like to think that we’ve evolved and we’re now able to take advantage of some of the offerings that weren’t appropriate for us previously.”
Above all, and despite the continual advancements in electronic trading, Anderson believes that clear communication and direct discussion holds the key not only to dealers’ relationships with their managers and their brokers but also to ensuring that the industry evolves in the right way when it comes to the most topical issues such as pre- and post-trade data consolidation; cross-border harmonisation and interoperability. “It is crucial that there is transparent communication because you only get the right type of change if you can clearly articulate what it is you want.”
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