Where is the decision to outsource trading coming from primarily?
Benjamin Arnold, founder and managing partner at Meraki Global Advisors
With our current and prospective clients, we’ve discussed cost and operational efficiency, access to live traders with expertise in new asset classes and all global markets, technology enhancements, and overall trading desk optimisation as driving factors behind outsourcing their trading. The bottom line is, if an investment manager can increase fund performance by eliminating implicit and explicit deadweight loss resulting from an inefficient trading desk architecture, they should – at a minimum – explore the concept further.
How did you decide the structure of your offering and how does it differ to competitors?
Outsourced trading already existed but the firms and their traders providing these services were functionally no different than that of an introducing broker or sell-side sales trader. There were a limited number of outsourced trading services offering a use case that we felt was genuinely accretive to the investment manager. I was determined to build a structure that allowed us to be the exact mirror image of a sophisticated buy-side trading desk, with just one structural difference: our traders would not be employees of the investment manager.
Meraki Global Advisors’ unbundled offering embraces the ethos of what outsourced trading is: operating as an unconflicted true extension of the investment manager – a quality that represents the model’s core value proposition. A true outsourced trade management solution, like the service we provide, strictly communicates orders to the client’s execution counterparties as an authorised trader of the fund. Our firm has stood by our promise to provide clients the highest level of service in the industry by meticulously managing the number of client mandates we take on, maintaining a 3:1 client to trader ratio, and only providing a full or supplemental trade management solution. These aspects allow our traders to be familiar with the inner workings of each client they support. We also do not offer backup trading services unless we are a supplemental solution and the client’s internal trader needs backup periodically. A trader that is not continuously involved in the implementation leg of the investment thesis and seldomly trades as a back-up trader, can be hazardous in our opinion.
What are the differentiated remits or functions that your traders provide that sets them apart from your competitors?
When I look at the current landscape, I don’t think anyone prioritises requisite buy-side experience quite like we do at Meraki. The portfolio manager/trader relationship is paramount and revolves around more than just trade execution. A seasoned buy-side trader understands the portfolio manager, as well as portfolio, execution, and counterparty risks and when welcomed, a deep understanding of the investment thesis to sift through information for the portfolio manager, and to anticipate and be prepared for follow up questions. There is a very tangible understanding of the comprehensive set of factors that comes with managing risk, and you can’t teach that experience unless you’ve sat on a buy-side trading desk. That shared experience removes an immediate hurdle that an outsourced trading provider will encounter if they do not have the requisite in-house talent. Meraki’s traders offer an initial level of comfort that vastly expedites the learning curve of how we can best service a portfolio or fund manager. This allows the client to focus on their core strategy without the disruption of market volatility, setting both parties up for long-term success.
How do you see traditional asset managers’ decision to outsource trading impacting the industry as a whole?
Financial services are a perpetually evolving efficiency machine. Therefore, the migration to outsourced trading will continue to increase as traditional asset managers seek to realise the benefits of localised market access, asset-specific hedging structured by their traders, and cost savings. The outsourced solution is fundamental in democratising the buy-side landscape by lowering not only the barrier to entry, but also, optimising operating costs across the spectrum of managers. The successful platforms that will grow in market share will have to diligently scale with a focus on their client’s longevity over simply accumulating additional revenue streams. That prioritisation has always been part of our ethos.
What have been the key developments for outsourced trading over the last year?
Geographic diversification has been key. To offer additional value beyond direct market access – something highlighted by the pandemic – Meraki has always covered the global trading day with physical seats in relevant geographic locations. Our trading skillset not only encompasses the multi-asset spectrum, but our traders have also traded live markets globally, with few local market nuances that they’ve not encountered. In addition, the increasing complexity of local market structure and regulatory changes will continue to be a valuable ‘solve’ for the best outsourced platforms to offer clients, alongside the march of technological advancements and the trader’s proficiency in the ever-evolving tools utilised to enhance fund performance, all of which have been areas of focus this past year.
What are Meraki’s priorities moving forward?
Continuing to grow by scaling and fine tuning the scope of services and tools we provide our clients is a key priority. The injection of large language models and AI tools is dynamically changing the way trading desks operate, and we remain committed to offering top tier and cutting-edge technological service and efficiencies to our clients. Given the nascent nature of our business, high level decision makers are sometimes reticent to make the decision to outsource their trade management. However, Meraki’s structure and talent provides a truly bespoke solution that is best-of-breed, evidenced by our successful growth servicing investment managers that range in size, complexity, and trading remits. I could not be more excited about our continued growth.
