A BRAVE NEW WORLD.

Unlike many agency brokers, Execution has been treading the boards for almost ten years. Dipesh Patel and Tony Nash explain why the firm is well placed to take advantage of today’s opportunities.

What is the history of Execution?

Dipesh Patel – Execution is an independent agency stock broking firm, which was established by Nick Finegold, who had been head of global equity sales trading at Deutsche Bank in 2001. The original focus was to conduct block crossing for the larger institutional clients. At the same time, there was a great deal of pressure on the conventional banking model and the conflicts of interest thanks to the dot com crisis. The firm decided to offer independent research services and was able to hire people with a number of years experience and a good pedigree. Since then, Nick has significantly expanded the research capabilities and diversified the platform. I know we are referred to as a boutique but I do not think it reflects our business model. Unlike boutiques we started in the large cap arena and today, we are a fully functioning investment bank that offers clients execution, sales, trading, research, re-insurance and corporate access.

I have an aversion to the word boutique because it sounds niche. We cover the same clients as the bulge brackets across a wide range of products ranging from cash equities, portfolio trading, algorithmic trading, ETFs and derivatives. In fact 80% of our top 75 clients are the same names you would expect to see at a Goldman, Merrill or Deutsche Bank. One of the main differences with the banks is that we do not have  proprietary trading nor do we offer prime broking services which has meant that we have been pretty evenly weighted between long only and hedge funds.

The company has greatly expanded in the past year, making numerous hires. How big does it want to grow?

Tony Nash – We have grown dramatically particularly this year. The current number is 160, up from 135 the same time last year. In the past three months alone we have hired 15 to 20 people. This has included Bruce Howitt, formerly a director of Merrill Lynch’s fixed income business, to head and develop our newly created agency credit division and Nick Tranter as head of derivatives, again a new area of business for us. He had been with Morgan Stanley for ten years and then BNP Paribas as pan-European head of equity and derivatives flow sales. Just as in the dot com crisis, we took advantage of a window that has enabled us to hire high quality people. We didn’t just want to get the headcount up but cherry-pick the best candidates who understood our entrepreneurial culture. It has been a contrast to 2006 and 2007 when it was very difficult to talk to people because of contracts, guarantees, bonuses, stock options, etc. We hired four people then but now we have talked to a least 200 in the past 18 months.

Tony, you joined last November to head electronic and portfolio trading. How are you developing the business?

The main objective has been to structure a product that rivals, if not betters the offering of the investment banks. We realised that it would be too costly and time consuming to build a platform from scratch. Also, we knew the market did not need another set of algorithms. We decided to effectively outsource the agency trading platform to four global brokers which we believe represent the best providers on the street. This has provided us with immediate access to 32 separate algorithms as well as several liquidity pools, and sophisticated smart order routing technology. We have the direct relationship with the accounts and act as an intermediary offering DMA, algos, programme trading and exchange traded funds across different asset classes and regions. At the moment we offer cash equity trading but Nick and Bruce are currently working on expanding into other areas. On the derivatives side, for example, the plan is to offer exchange-listed instruments such as futures, options and sector swaps.

Dipesh, how has the research and sales capability been developed?

I joined in 2005 to head the European equity sales group and at that time Execution had some interesting research, quality sales-traders but no distribution capability. There were only one or two salespeople but we knew in order promote our profile and attract a wider mix of portfolio managers we needed to expand our research coverage and salesforce. In the past two years, I have hired 12 new people, taking the total headcount to 14 while we expanded our research coverage to 13 sectors from three. We now cover banks, insurance, food retail, general retail, media, telecoms, aerospace and defence, capital goods, household goods, consumer staples, transport and logistics, and drinks & beverages. We just hired a leisure analyst and plan to add a few more sectors that are obvious omissions such as oil & gas, pharmaceuticals, utilities, metals and mining. The focus of sales and research is on idea generation and not maintenance. You will not see us produce a 10-page maintenance report after a company issues a results statement but we’ll highlight investment opportunities.

Do you expect to keep growing at the same rate? And if so, are you worried about losing that entrepreneurial spirit?

Dipesh Patel – After this exceptional period of growth, we need to integrate the people that we have hired and focus on developing the new business areas of fixed income and derivatives as well as continue expanding our electronic platform. Our strategy is clearly to expand further but I do not see it happening at the same rate as in the past 12 to 18 months. The aim is to have a total of about 300 people by 2011and I do not think that will derail the firm’s innovative and entrepreneurial culture. These traits have been in the firm’s DNA since inception and they are one of the main reasons people join us.

Agency brokers have benefited from the fallout of the investment banks and there have been many start-ups. Do you think there will be a shakeout?

Dipesh Patel – There has definitely been a shift in public perception, and business, to some of the independent agency brokers from the investment banks. However, I would not underestimate the recent bounce back of the banks. They have come back faster than anyone expected and are being very competitive in hiring the talent pool. Also, I am not sure that many of the firms that started in the past year will survive. You need critical mass and that is not easy to accumulate. Execution, on the other hand, has been here for almost ten years, has built a track record and definitely has the scale to compete effectively.

Do you think you will participate in the consolidation?

Dipesh Patel – I will never say never, but I do not think it is likely that we will be part of one of the larger organisations. Instead, I can see us bolt on an acquisition if an opportunity arises.