Vision for the Future
At some point, T+1 will come back again. That sort of got back-burnered for a while, but - especially if volatility picks up again - I'd expect this to come to the forefront. It would probably require investment in technology. Things would have to be done sooner in terms of clearing and settling, so we'd need a boost or an upgrade to the system.
Fun Facts
Tell us something interesting that few people know about your professional or personal background.
In the mid '90s I was the 800 voice for the Bankers Trust mutual fund line. If you were to call, you'd hear me saying, "For more information about small-cap growth ..."
INTERNATIONAL TRADING
In which international markets do you trade?
We trade only U.S. equities. We currently do not manage any international equity assets in-house; we outsource that to external managers. We do what-ifs from time to time to determine whether we should bring international assets in-house. It's something that we could potentially consider down the road.
Who do you use as a custodian bank?
State Street.
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Ohio Public Employees Retirement System (OPERS)
277 East Town St.
Columbus, OH 43215
Assets under management:
The fund itself has $70 billion. My trading desk trades the $27 billion in equity assets.
Daily volume in equities:
$1.5 million shares.
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Types of products traded:
Equities: 43 percent of fund
Global bonds: 23 percent
Non-U.S. equity: 20 percent
Real Estate: 5.2 percent
Private Equities: 1.5 percent (Rounding errors do not total 100 percent.)
Structure of trading department:
I run equities and have two traders working with me. I report to the senior investment officer of fund management.
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He is not a portfolio manager; he is more of a risk officer.
On the fixed-income side, they report to the chief investment officer. The investment division is structured into publicly traded markets, which fixed income is part of. Trading was stripped out and put into the fund management group.
Previous Positions:
I have been with OPERS for two and a half years.
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Prior to OPERS, I was SVP and head of equity trading at ING Funds in New York. Before joining OPERS, I was senior trader at Strong Funds in Milwaukee for two years. My initial trading job was at Bankers Trust where I was VP of equity trading.
Education:
B.A. in economics from Mount Holyoke College; M.B.A. in finance from Fordham University (New York).
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TECHNOLOGY
Technology used to trade equities:
We use Macgregor for our order management system and Flextrade for our execution management system. We use Bloomberg and Bridge Data for our market data system. We do not develop any technology in-house.
Chief Information Officer:
Chuck Quinlan
How do you work with your CIO when it comes to getting new technology on the trading desk?
We have a process when we're considering new technology. We first write up a proposal. It then goes to a committee that looks at how IT resources will be allocated among the department. If it passes muster, we are put in the queue.
As far as implementation goes, it depends on the complexity of the product. Sometimes it can be implemented within a day or two. At other times, where more background work is needed, it can take several weeks to a month or so.
LOOKING AHEAD
What trends/regulations/issues do you think will transform your role as a trader?
The largest two trends I see are consolidation and innovation. Just as we saw with the ECNs, we saw them proliferate and then consolidate to a handful. Now we're seeing crossing networks and dark pools. As soon as new ideas are proven successful - imitators jump in and build their own version. The market can only support so many and then consolidate again.
What do you hope technology can change to make your role easier?
I wish there were more standardization. I wish there were a way for my desk to centralize liquidity so I would not have to tap dozens of pools of liquidity. I need to find a highway to liquidity. It hasn't gotten better with consolidation because as quickly as the ECNs have consolidated, the crossing networks have refractured it.
PORTFOLIO MANAGEMENT
Describe your relationship with your portfolio managers? Has it changed recently? Do you expect it to change?
We trade for five portfolio managers. It's a very collegial relationship. I don't really feel it's changed, nor do I expect that aspect of it to change. I guess what has changed the most is, rather than provide stock-specific information, we spend more time giving them more-macro information, such as markets, trends, etc. It's changed because technology has given us better access to this information and because technology has helped the portfolio managers keep up with specific stocks more readily than they have in the past.
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ALGORITHMS
Types of algorithms used to trade:
We use implementation shortfall, VWAP, volume-participating, liquidity-seeking and then a group that I think of as laying in the weeds, where there is some sort of stealth component or masking element to them.
Which algorithms do you use most often?
That is changing. When we began, VWAP was most frequently used. Now we're moving toward the liquidity-seeking and implementation-shortfall types.
Do you use algorithms for equities only?
I'm not in a position to talk about the rest of the firm. We're very separate.
Which brokers' algorithms do you use?
I don't feel I can comment on that.
Do you build your own algorithms?
We have done a 180 on this. What we've found out is that the amount of research and development needed to create your own algorithms is not feasible for us, so we've decided to use the Street's talent. We made this decision about a year ago. We had hired a consultant from academia from a market micro structure program who worked with us for about 18 months. When we realized the extent of the commitment that would be involved to keep the project going, we opted to use the Street's talent. I think if you're a very large fund with deep pockets or a hedge fund with money to invest, it's a great idea. But for funds such as ours, it doesn't make economic sense.
For what percentage of trading are algorithms used?
50 to 55 percent.
How do you rate your brokers and determine which broker will get your order flow?
We use QSG (Quantitative Services Group). We use an implementation shortfall methodology. Our broker list is constructed primarily by research folks of portfolio managers and analysts, so we use the data from QSG to help us improve and work with the brokers that aren't performing as well as others. So we use it more as a tool than to figure out where we should direct order flow.
We did a search about four years ago, before I got here, of all the available vendors at the time. What we liked about QSG was the next-day reporting and the fact that it was Web based. We could go to the site anytime and pick any date or fund and drill down for more information. They've also been willing to work with us to customize reports.
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Interview by Kerry Massaro
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