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2007 TOC

Eoin Murray, Chief Investment Officer, Old Mutual Asset Managers (London)

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Personal Background
Fund Background
Technology and Algos
Big Picture

Description of Firm:

At the corporate level, Old Mutual started out life in the 1880s in the insurance sector in South Africa. Since then it has grown beyond South African borders and really beefed up its international capabilities, including the recent acquisition of the Skandia Group. Activities are still based with one leg in South Africa, but also heavily in Europe and the U.S., as well as a growing presence in Asia. The investment division comprises four key areas: quantitative strategies covering all asset classes, discretionary equities, discretionary fixed income and a manager-of-managers managed account platform.

Trading Style:

We employ a mix of trading styles that are based around adding value to the overall investment process. That ranges from, with some of the discretionary equity managers, stock-by-stock dealing from a centralized trading desk to programs for some of the quantitative work through to high-frequency DMA on the stat arb side.

Products Offered:

The vast bulk of what we have in the hedge fund space today is in the quant strategies area. Our largest quantitative fund has been running for almost six years -- a global equity market-neutral program that accounts for just shy of $2 billion. We've got a quant program in the global equity long/short space and a Sharia-compliant version of that, and we've also got a couple of stat arb programs. In addition, we have some U.K. long/short equity on the discretionary side.

Assets Under Management:

Approximately $13 billion in assets under management, of which just more than $3 billion is in hedge funds; the remainder is in long-only mandates, typically either in segregated institutional accounts or in unit trust or mutual funds.

Structure of Trading Operations:

In the centralized team we have five traders, three covering programs and stock-by-stock equity and two on the treasury and fixed-income side. On the DMA side, it tends to be the fund managers who are involved in that particular effort -- and that also applies when we move out to some of the more esoteric fixed-income instruments that we trade.

INTERNATIONAL TRADING

Does the firm trade internationally?

We're all London-based, and we're investing in developed markets around the world. To a large extent, there's a natural bias toward Europe and the U.K. for our trading, but our trading activities are nonetheless definitely global in scope.

What are the challenges of trading globally?

Some of the biggest challenges come out of some of the Asia-Pacific markets in which we trade, with the geographical distance we face. Some of those markets are somewhat of a closed shop to nonlocals. So we have to rely quite heavily on our counterparties to execute in our best interests out of our natural office hours.

TECHNOLOGY

Technology Environment

We try to access as many different liquidity pools across the different asset classes as we can using a variety of vendors. So for equities, we've got electronic connectivity to the broker community via the FIX messaging system, and that's directly linked into our standardized order management system. We also have a direct link to buy-side liquidity via Liquidnet for equities. For FX, we have a couple of platforms that we use: FXConnect and FXall. We also use a specific order and execution management platform for our stat arb activities, an off-shelf product from Flextrade.

Buy vs. Build Strategy

About 90 percent of our systems are off-the-shelf. The rationale behind that is the same as the strategy we employ throughout the firm in virtually any activity: Unless it's an area in which we think we can add value and have an informational advantage over other people on the Street, then our preference is to go off the shelf and, if necessary, customize an off-the-shelf product to our own specific requirements. Our core order management system is the Charles River platform, and Charles River has a fairly broad user community in the investment world. We've found that Charles River always is trying to bring in new functionality. We're constantly assessing what we have today, what our requirements are and how far we need to go to meet those requirements. So technology always is something that's on watch.

Who is responsible for the firm's technology?

That falls within our general IT department for the centralized activities. For some of the quant-specific activities, we have a separate, dedicated modeling systems development group.

Use of Crossing Networks and Dark Pools

It's a key -- and growing -- part of what we do. That type of liquidity is accessed via the likes of Liquidnet, ITG Posit, Garban-ICAP and Cantor Fitzgerald, and we've got several more connections. The centralized dealing desk will go off and look for particular alternative dark pools, either on program desks or via transition management providers. Basically, we're always looking to make a judgment on their ability to give us anonymous liquidity in the required volume that we have.

ALGORITHMS & BROKERAGE SERVICES

Use of Algorithms

The bulk of our algorithmic trading today is in one of two areas. On the program side for the general quant activity, quite a large portion of that work we're outsourcing to our executing counterparties. We give them specific benchmarks and challenge them to beat those. The other side of the equation is the stat arb side where we've invested in building our own algorithms. We feel that gives us a suite of algorithms that is particularly defined and developed for the high-frequency area.

When you do use algorithms, are they primarily dealer-provided?

N/A

Prime and Executing Brokers

On the executing side, the biggest counterparties we have are the likes of UBS, Merrill Lynch, Morgan Stanley and Citigroup.

How do you determine which brokers receive your order flow?

We operate on the basis of best execution and access to liquidity in general. Clearly we are thinking hard about exactly what defines best execution in light of some of the legislative changes we face here in Europe.

Interview Conducted by Randall Devere, Contributing Writer