What’s been front of mind for the buy-side so far in 2024?
It’s a combination of different aspects. On the one side we need to continue to invest in technology infrastructures to be sure to follow trends and not lag behind. Essentially, we would like to remain ahead of the curve and for that we need to be more efficient in terms of data analysis and how we store the data. If we are to be more data-centric, we need to be sure that the backbone of processes follows the cutting edge of technology in terms of data computing. This is a key component of success as we try to maintain some hybrid capabilities.
In addition, to leverage the technology provided by third-party vendors, we need to create a seamless operability between the different components of the systems to be sure that we can address both speed and efficiency. At Groupama AM, we especially want to enrich the pre-trade analytics of the traders and have always invested in this angle. We want to be sure that we have automation on one side, and on the other, the ability to face the most complex execution in parallel. Connectivity therefore is a key part of success; to imagine any enhancements on pre-trade, this is essential.
At the same time, we on the buy-side need to be sure that we are following the regulatory constraints. This year T+1 is one of the hardest topics because it concerns post-trade and therefore firms need to be sure that their overall lifecycle is taken into consideration. What is key is ensuring that we have the capacity to follow the different rates for the different asset classes. The key challenge typically is the evolution of microstructure in this way, which for us is specifically in fixed income – an important asset class for us.
As we have 70% of fixed income in assets under management, a key component therefore becomes the capacity to follow evolutions and use the right information to facilitate the smartest decisions in terms of execution, based on historical data and on real-time data, which is quite new for fixed income business. That’s why it’s interesting in this time of testing and also why technology is so very important for us to address this point.
How would you describe the dynamic and culture of Groupama AM’s trading desks?
Since the beginning, our desks have been designed to be a mix between strong senior expertise and historical presence, and new energy. We build up the desks with senior traders, but year after year we focus on onboarding more junior people in order to provide alternative views and different manners of manipulating data, essentially mixing the new with historic processes.
This approach refreshes the minds of the teams and is very positive – we like to have people come in from different backgrounds because it promotes positive reflection which creates efficiency.
In addition, we ensure that the team is very comfortable in navigating data and can manipulate that data effectively. It’s important to have a high level of autonomy in order to create developments and be agile as opposed to just waiting for some big enhancement. This goes back to having dedicated people for all data topics to remain ahead of that curve in terms of market evolution.
With the ongoing technological advancements, how are the skillsets that make for a good trader evolving?
It’s important to be specific in your skillset but also be prepared to jump on new jobs. We need to have a good mix between a strong knowledge of the market and how it works, combined with some data appetites, and if you can create good partnerships that’s also key.
These components are important because if you only have quant people, then sometimes you are missing a part of the mood or behaviour of the market. Everything is not quants, historical knowledge and awareness of best practice is important (which is why seniority also counts).
Essentially, being able to adapt to changing conditions is very important and is why – in terms of skill-sets – the challenge is to have people liking to manipulate the system and be looking forward at what’s next. It’s important to have some value proposal to enhance the day-to-day business and understand how things are evolving.
In terms of the role of the head of trading, in the end our main job is to be sure that our traders are well-equipped to work well in the day-to-day and look at how we can address this point in order to invest correctly in the infrastructure. It’s important to listen to your teams in order to enhance those trading capabilities.
It’s also important to educate PM’s in terms of execution, execution strategy, and complexity of the market and share that between them and the traders in order to be most effective. It’s a smart combination between seniority, specific knowledge, and technology. If the level of confidence between the PM and the traders is increasing, the short-term alpha generation is improving.
In addition, we need to be a data provider to PMs in order to add liquidity proxy in the investment decision and also continually consider the second step in the execution process. If you are successful in creating this bilateral sharing process you improve both sides and increase trust.
Looking at the rest of 2024, what changes in market structure are you most conscious of?
On our equity side we have seen some new liquidity providers emerge, meaning that we’ve seen a spike in more bilateral trades than in the past. This means that we now need to combine the multilateral trade market on a one-on-one execution point by mixing these different execution protocols into one process.
That’s why we have developed more waterfall processes to account for different content, take into consideration different execution channel streams and add more smart execution processes for low touch.
At this point we need to have more pre-trade transparency in fixed income and we need to introduce more electronic capabilities. For digitalisation in execution processes, we need to receive more streams and store these streams intelligently, especially with the combination between different execution venues. We need real partners to help the buy-side in revising and managing these developments.
More transparency to facilitate the execution process or distribution of the execution process is key, and in the end very positive for the end user because it will reduce the implicit cost.