BUY-SIDE PERSPECTIVE: Mohammad Sohail on Multi-Asset Trading

“being able to learn about different asset classes has ultimately delivered better interaction with the investment team.”

(This article first appeared on Best Execution, a Markets Media Group publication.)

Mohammad Saad Sohail, head of trading at Sarasin & Partners, spoke to BEST EXECUTION about the current trend towards multi-asset trading – and his experience of making the switch.

To become multi-asset or not? That is the question
In recent years we have seen an industry trend, particularly among medium-sized asset managers, to consider or adopt multi-asset dealing desks in an effort to streamline operations. Naturally, any change of this nature has major implications for a business and does not come without risks and challenges.

While there is no one-size-fits-all approach, the move to a multi-asset dealing desk six years ago has benefited our business. Prior to this we used a more conventional structure, whereby asset classes were split between traders. The decision to consolidate was largely driven by simplifying technology, coverage, scale and the need for the traders to be better integrated with the investment team.

Different mindsets
One of the biggest challenges of this transition is changing a trader’s mindset, particularly one who might have traded equities their whole career. They now have to move from their comfort zone to an asset class where terminology, market structure and behaviour can be completely different to what they know.

We have found it is crucial to hire the right people, who have a willingness to learn and grow, or as one of our traders puts it: “add more strings to my bow”. When learning about a new asset class, traders have to put their ego aside and accept they may have limited or no knowledge on the new area. It can be uncomfortable at times and a perhaps culture shock, but creating the right environment is important. This involves asking questions and a willingness to cross-train one another. Even simple things, such as seating traders who trade different asset classes together, can yield positive results. It’s also important to lead by example; for example, I’ve had limited exposure to trading credit and had to learn some of the basics from one of the traders in the team.

Full integration brings greater collaboration
While there is a level of specialisation within the team, every trader is capable of executing any order. However, human nature suggests we tend to gravitate towards things which are familiar to us. So how do you stop traders from being siloed and only trading other asset classes when it’s an absolute necessity? To ensure we are fully multi-asset, our traders spend time rotating between asset classes throughout the year and not just during training. This has meant the traders remain familiar with different asset classes – how they operate and any nuances – while building strong external relationships with sell-side brokers.

The other benefit this has brought is building stronger internal relationships with different portfolio managers, some whom may have never interacted with a specific dealer before. Adopting this approach has given traders a continued opportunity to learn, while portfolio managers are comfortable dealing with a wider range of traders, which has led to a more collaborative approach. Some asset classes involve more collaboration than others. Having the flexibility of moving trading resources in asset classes which may be more intensive, or where trading volumes are busier, has allowed for greater scale in the operating model.
Another challenge has been market structure differences across asset classes. However, being able to learn about different asset classes has ultimately delivered better interaction with the investment team. It has enabled traders to understand how one asset class might impact the other. For example, moves in derivatives markets can impact underlying equity positions, especially given the exponential rise in options usage in the US.

The matter of technology
A key area of any trading desk is technology. There has long been debate over whether firms should adopt a ‘best-in-class’ approach or consolidate for EMS and TCA. Our approach has been to consolidate. By working with providers at a holistic level, we have been able to standardise processes, particularly when in terms of data structures. In turn, this has allowed for greater analysis and understanding. For example, an equity or fixed income trader may typically conclude the order once it has been executed. However, there may be an FX requirement as well. By linking these transactions and effectively allowing one desk to transact both of these it has provided greater visibility across the trade life cycle, while reducing slippage. In addition, by adopting a consolidated approach to technology, the cost of implementation has been lower and, crucially, easier. This has been important as our demand for data from our technology partners is ever increasing.

In addition, automation plays a key role in a multi-asset desk. By doing more with less, a key part of our philosophy has been to leverage technology where possible. When implementing automation, we adopted a holistic approach and focused on multiple asset classes, rather than just one. This has allowed for scale and has been a good example of where the technology has been transferable to different asset classes with a level of standardisation.

It has generated capacity, enabling the desk to focus on three key areas: firstly, being better incorporated within the investment process by working more closely with portfolio managers. Secondly, it has also allowed us to focus on more complex trades, particularly as the firm has expanded in geographical reach and asset classes. Lastly, with the enhancement of TCA platforms from a data consumption and front-end visualisation perspective, the desk has been able to analyse automated trades in more detail and to seek improvements to trading performance across all orders.

The transition to a multi-asset desk certainly brings challenges, but in our case, it has given us the opportunity to enhance our trading team, enabling us to serve our growing business better.

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