Emerging markets-focused asset manager Ninety One has just promoted Doug Blatch to deputy global head of trading. Blatch talks to BEST EXECUTION about what it is like to have the same bosses for 26 years, how South Africa possesses traits of both emerging and developed markets, the ways in which his role and that of head of global trading Cathy Gibson’s intersect, and the ongoing rollout of a new order management system at the firm.
Best Execution: You have been with Ninety One for 26 years. What experience and wisdom have you accrued in that time that you are looking to leverage in this new role?
Doug Blatch:Â I have been with the firm for a very long time, and naturally have seen the development and progression of the business over that time. I understand the culture of the organisation. I understand what it’s like to have emerging markets (EM) roots as a business. And I think that certainly stands us in good stead to actually be competitive in these markets. At the end of the day, we have been lucky to have a management team where the founders are still very much involved in the business. And by and large, I have had the same bosses over the entire time that I have been here, which is very unusual for a company. So there is a lot of continuity that I can bring.
What is it like having the same bosses for a quarter of a century?
There is no hiding! I think it is safe to say that they know my strengths and weaknesses. And, as a consequence, I also know them quite well. We have all gone through the various stages of business, and of life. It gives you a great understanding of their perspective.
Can you go into some detail about how the trade landscape in South Africa is different to Europe? What evolutions have you seen in EM? And will you retain your EM focus?
South Africa is an interesting case because it has elements of EM behaviour as well as elements of developed market (DM) behaviour. The financial markets in South Africa are generally known to be well developed and quite sophisticated. The area where we have probably lagged behind some of the rest of the world is in liquidity – we are generally operating in an environment where liquidity is lower. That brings about its own unique challenges.
South Africa is a unique ecosystem where we are cognisant of our role, developing a sustainable local component to our broker industry. We have worked quite extensively with many of these smaller brokers in terms of developing their capacity, developing skills so that we can create a richer and more diverse stockbroking fraternity.
Our Cape Town desk has historically looked after trades across Africa and the Middle East. So, we have had experience across a number of EMs that are outside of South Africa, and we understand that landscape quite well. But, of course, I will very much be involved in our global trading book of business, which obviously includes both developed markets (DMs) and EMs. I don’t think I will be losing one over the other. It will still be a two-pronged approach.
Given the fact that BRICS, of which South Africa is a member, are now so important to the global economy, is it inevitable that as global head of trading, you will still have that EM focus?
Very much so. Our ability to navigate EMs is one of our key focus areas and will remain so. It is one of our distinct calling cards that we as a business have globally and it’s not just referring to what we do in South Africa. We have built up a track record across the world’s EMs and see ourselves as leaders in those particular markets. So, it’s very much one of our key growth focus areas.
Can you give a broad, bird’s-eye-view, lay of the land, as to the challenges and opportunities you are expecting in your new role in the world of trading over the next year or so?
There are a number of different things that we are working on at the moment. Clearly, one of my key focus areas is to elevate the trading analytics that we have in the business and really try to get a better feedback loop in terms of understanding what the data says relative to what our existing workflows are suggesting, and constantly refining that.
There is a requirement to elevate that, both internally and externally, as our business evolves. I see that as being challenging from the perspective of making sure our data is correct, because so much of the quality of the output is dependent on the input of the data. We have lots of data, but making sure that it is correctly tagged, that it is correctly bucketed against the appropriate metrics will result in actually getting key insights.
We are also rolling out a new order management system, to ensure we have a product that is world class and caters to our specialist needs.
There are also wider changes that are going to require refinement to what we do. For instance, the reduction of the equity settlement cycle in the US to T+1 — has got a big impact potentially, and I think the markets are only now starting to grapple with some of the unintended consequences of that.
How will your role and Cathy’s role intertwine? How will you be supporting Cathy and what responsibilities and functions will you be taking on?
Cathy and I have worked together for almost three years now. We complement one another because we have different skill sets, different experiences. Different asset class specialisations are at the root of what we do, and so as a consequence it’s a good combination of different perspectives.
I will be focusing more on the management of information and trading analytics of our global trading book. That is absolutely going to be something in my domain. The fact that I am Cape Town-based is going to mean that the mentoring and support role that I will be fulfilling with the new leadership on the Cape Town desk will continue for some time. Other than that, we do dovetail with one another and there is some overlap, naturally.
Cathy has a much higher profile than I ever did from a global trading perspective, and she is involved in a number of different initiatives around sustainability in trading, for instance. She has brought a number of new developments to the desk, and she will continue to do that and continue to be involved in many of the large symposiums and networking events in Europe. The rest will evolve as we go on.
What technologies and other developments are you looking to implement to improve best execution across global trading?
The introduction of our new order management system – it is an integrated order management system and execution management system as far as equities is concerned. That is a massive undertaking that we are working on at the moment. With any change to a system, you want to start off with at least what you currently have which has been something that we have been working on and refining for many, many years, and they are both good products – our order management system and the execution management system. We are hoping that there will be benefits to having those interlinked. I am expecting that to bring a better trading experience overall to the desk will not necessarily be ready on day one but will also need to be tweaked and refined going forward. This is something that we really hope will give us an edge in terms of improving overall latency.
The other thing that we are doing is working quite hard with our TCA providers, transaction cost analysis providers. We have separate ones for Rates and FX versus equities. And there are a number of refinements that we are trying to get from those vendors to enhance what we are doing on the trading analytics side. Those are both exciting initiatives. Some of these will take time to develop because they require development on the vendor side and clearly, they need to see a use case for doing so before making that available to the likes of ourselves.
What is your prognosis for global markets over the next year?
The current uncertainty in global markets and in most risk assets at the moment is around the absolute level of core interest rates. I do not think the market has fully priced what that means for risk assets. We have got massive pockets of illiquidity at times, as a market in general, with relatively low conviction around how this is all going to pan out. I think that the current headwinds that we are facing as an industry are probably here for longer than we think just because all this needs to still play out in the system. We have had a relatively short time period, where interest rates have ratcheted up enormously after a period where interest rates have been close to zero for many, many years. I do not think that that’s really baked into the valuations of risk assets. And we all know that high interest rates are not good for valuations. So, I still see some headwinds, to be honest. But markets are cyclical, and, at some stage, when risk returns, we will be well positioned for that as a business.
Do you think that the period that we are going through now with interest rates is actually more of a norm than what we had before the pandemic with near zero interest rates? Or do you think it’s just cyclical?
I think it is cyclical, but I think rates at current levels are definitely in the extended range – that does not strike me as being normal either. Just as five to six percent is not normal, neither was zero.
You mentioned EM being one of the firm’s signature strengths. Decarbonisation is also a focus for you. How do they intersect and work together as opportunities
Sustainability is very much one of the fundamental things that we look at across the business and from a broad sustainability perspective we think that climate risk is one of our biggest existential challenges. We also know that around 60% of carbon emissions are from the emerging markets world and we also know that the ability of emerging markets to fund this themselves is going to be challenged, to say the least. We think that it is going to be driven more from the corporates within emerging markets.
We aim to give investors a combination of both public credit and private credit as a way of doing this and we think that on the public side of things, there are a number of emerging market corporates that are themselves big emitters. But at the same time, they have got very well thought out transition plans, or very credible plans that actually require funding. So we think that there is a real opportunity to be able to lend to those companies with those proper plans in place and be able to measure and monitor their progress while actually generating a decent risk adjusted return. On the private side, we are looking to lend to those companies that can facilitate some of the new technologies and strategies that will enable other companies transitions. The reason we are working with the EM corporate side of things in the main is because we have seen that the response from a country perspective has been quite varied. In many places, there is not the political will. Companies, however, know what they have to do. We want investments to stay in public markets as far as possible so they are held accountable and can be very clearly measured against their transition plans.
It seems like an ample opportunity – where do you see it going wrong, potentially?
Perhaps if companies’ transition plans are not realistic, and they are not held accountable enough, and they are not given the support where they need it at certain times, given there are going to be times when big decisions with big consequences are going to have to be made. If companies suddenly lose faith or lose heart, then we could see some slippage. This all requires quite a holistic approach to investing as well. It is not just looking at valuations, we must keep that engagement aspect with those firms very much visible and intact, and hold those companies to account. That’s going to be vital. So I think if that does not happen in the way that we envisage, then maybe that is where it could go wrong.
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