All changed

Last year has seen a tidal wave of departures in the industry, The TRADE looks at why there have been so many changes at the top.

By John Bakie January 10, 2017 12:17 PM GMT

There can be little doubt that 2016 has been a tumultuous year, not only in the wider world with the UK’s Brexit vote and Donald Trump’s surprise presidential election win, but also in the world of asset management, which has seen a swathe of senior departures.

The TRADE has counted no fewer than 20 buy-side heads of desk or senior traders at big name firms leaving their jobs this year. The scale of the power vacuum at the top of the industry is unprecedented. However, we believe there are many more departures among the smaller asset managers as well that we simply don’t yet know about.

But what could be the cause of the huge talent exodus? The TRADE has been looking into this issue and readers will not be surprised to hear that regulation and technology are likely factors.

Regulatory Revolt

These days it is almost impossible to look at any industry developments without considering the role regulation has to play. While this has been a theme for many years, 2016 (and likely 2017) has been a crucial year for the buy-side as it struggles to get to grips with MiFID II in Europe and a variety of new regulations in the US.

One trader told The TRADE: “We’re seeing a far higher level of regulatory scrutiny than ever before and you’ve got to embrace the way things are moving if you want to get on in this industry. I think for some, the intense responsibility and scrutiny is simply too much, and they would prefer to move on to other roles where there’s less risk of getting it wrong.”

Anecdotal reports suggest that some senior traders have voluntarily opted to leave because they don’t want to face the barrage of regulatory scrutiny coming their way. However, others suggest some desk heads have been pushed out due to a reluctance to change their ways to adapt to the post-MiFID world.

Senior managers at asset management firms may be keen to reshuffle their trading teams to fill them with individuals who are more open to new ways of trading and who are less likely to be stalwarts of the old broker crossing network or sales-trader approaches.

Sell-side withdrawal

“It used to be that you just passed on responsibility to the sell-side, but today that’s much less feasible and the buy-side is increasingly expected to use sell-side tools to analyse and manage their trades,” a trader told us.

With brokers facing increased pressure not just from regulators but also their more challenging financial positions in the post-Lehmans era, they are increasingly scaling back the range of services they offer the buy-side. Where they were once one-stop-shops for all your trading needs, the increased complexity and cost of this approach means many brokers simply cannot afford to service the buy-side to the extent they once did and regulators are increasingly seeing buy-side over-reliance on brokers as a potential conflict of interest.

Of course, as alluded to above, this means the job of the average buy-side trader has become significantly more complex and carries far more responsibility than it may have done in the past. It is simply no longer possible for any trader to simply act as a conduit between PMs and brokers, they are increasingly required to have a broader range of analytical skills to provide PMs with expert advice and to thoroughly scrutinise the activities of their sell-side counterparts.