David Lewis, SVP and Head of Global Equity Group Trading at Franklin Templeton, speaks with Traders Magazine about technological evolution and offers a framework for improving buy-side trading.
What are the biggest challenges facing the asset management industry?
Technology has always been a challenge and an opportunity. Being able to make faster and better investment decisions has always been the driving force in the investment community and AI has the potential to help the industry realize that potential. The issue is, of course, is who’s IP will AI train on and who will be able to understand the biases in each outcome? AI can help active management differentiate ALPHA even further as systems will continue to evolve and benefit those with Scale. Being able to analyze research from 100’s of internal investment researchers and understand the drivers and risks will be a differentiator that will benefit the largest asset managers.
Which issues can traders try to resolve to improve asset management?
I believe trading and traders can offer a differentiating value to institutional clients with a robust process, structure, oversight, and industry representation with regulators and exchanges. Active management is not only the investment and portfolio construction, but actively helping the clients meet their needs and goals. Trading is one leg of the three-legged stool of active management. Making sure you have industry leading practices allows the client to demand more from their other managers or their own employees. We do industry teach-ins with clients on various topics, which offer education and share best practices that one doesn’t usually get in a passive structure. Secondly, liquidity always remains a challenge, and with fragmentation and wholesaling of retail order flow it’s estimated that almost one-fifth of daily volumes in the US are inaccessible to the buy side. Having connectivity to multiple liquidity centers with traders who know how and when to use them is key to keeping opportunity cost and transactions costs low.
What are effective ways for traders to engage with the industry in order to raise profile and to support change where needed?
Traders across Franklin Templeton participate in exchange and regulatory advisory committees, buy-side only groups, and various industry organizations. A united buy side is a formidable ally when confronting practices that may only benefit a select few vs creating a level playing field for all participants. Without discussing details, the industry came together this spring to address a data sharing concern and through a united front was able to influence the provider to sunset the program. This would not have happened if the buy-side community was not united on the same issue. Traders need to participate in these types of groups to understand stressors of their counterparties and discuss ways to improve them. Everyone comes at an issue from different viewpoints and, by communicating and sharing those views, the industry eventually gets to a better place that benefits all participants.
What is your view on the use of technology in asset management?
The same as it’s always been. The industry will never stop changing and technology can help make us more efficient with better idea generation. You need to be comfortable with learning a new process every four to five years. I started in this industry checking paper tickets and keeping track of PM orders on excel, now we’re engaging machine learning to suggest better providers and profiling stocks. What you do today will not be the same in 2028. AI will make sure of that.
How can transforming the front office build a platform for growth?
Having an efficient process that’s always looking to improve will benefit all areas of the investment process from idea generation, stock screening, portfolio building, execution, and clearing. Our industry never rests, you must get used to reinventing yourself every few years. Creating a culture of accepting change, embracing new ways of solving a problem, and actively looking for the next growth opportunity is key to any success.
