BBVA aiming straight for the top

With $112 billion in assets, BBVA Asset Management is aiming to become one of the top 100 asset management groups in the world. Joe McGrath speaks to the man responsible for co-ordinating trading activities globally.

BBVA Asset Management is one of the best-known investment houses serving the Spanish and Latin American markets.

With more than $112 billion in assets under management, the business has local operations across Spain and in several LatAm markets including Argentina, Chile, Colombia, Mexico and Peru.

Trading operations are split between Mexico and Madrid and the two teams are currently in the process of a merger. The business is also taking steps to merge its European order management system with the Latin American system.

BBVA Asset Management is the latest bank-owned asset manager to move to a new global OMS, following in the footsteps of JP Morgan Asset Management, BMO Global Asset Management and GE Asset Management.

The Spanish investment manager is in the process of implementing the new OMS, designed to make it easier for its traders to share information across regions.

In an interview with The Trade, Pablo Fernandez-Gomez, senior dealer at BBVA Asset Management, explained: “We are in the middle of merging our Mexican desk with our Madrid desk. In the next six months we are going to merge both proprietary order management systems into a single one.

“We have implemented a proprietary OMS that gathers the trades from the two different portfolio management systems. We can send orders to several different platforms.”

The group currently sends orders via ITG Triton, Bloomberg EMSX, RFQ Hub, Liquidnet and Tradeweb depending on asset class. Fernandez-Gomez said the firm is continuing to look at new platforms which can be plugged into the system.

The Madrid-based senior dealer says it has been a busy few months for the desk as the business moves towards automating as many orders as possible.

He explains: “We partnered with ITG in the development of a smart order routing algo to execute low touch or low impact orders. We continue to work to include index futures and ETFs on request-for-quote mode.

In recent months, the business has upgraded its system to meet new requirements under the second European Markets in Financial Instruments Directive (MiFID II), which have greater obligations in terms of audit trails.

Fernandez-Gomez added: “We are in the process of understanding what MiFID II means and are collaborating with all satellite departments around the execution desk.

“We are focussed on developing a high level of transaction cost analysis reports to measure broker performance, trader performance, portfolio manager momentum to improve market timing on order creation and demonstrate best execution.”

Alpha generation

Fernandez-Gomez’s story is an interesting one.

Between 1999 and 2003, he worked as a middle office senior manager supervising equity and derivatives trades and working out issues arising from the custodian and settlement teams. After four years in the job, he moved on to become a junior portfolio manager in equities, looking after core investments in the US and Canada and international telco and technology stocks.

For most, this would have been the start of a glittering career in portfolio management, but he had other ideas and decided to join the dealing desk in December 2004 when the opportunity arose.

He recalls: “It was a very personal decision [not to continue as a PM]. I took a combined degree in International Business Finance with Business IT so I have always been involved in developing new tools and investigating new ways of doing business.

“There was an opportunity to create an OMS and a full STP systems and it looked like an interesting project.”

For some, the decision to give up the chance of moving into portfolio management may seem odd, but Fernandez-Gomez says the role of the dealing desk is more important than ever and he witnessed that shift occurring.

He explains: “The execution desk has been in the shadow of the PM for a long time. The alpha generated and everything rotated around the PMs.  Now the value coming from the execution desk, in providing best execution and providing information is increasing.

“With Mifid II, it is a game changer. Now we to provide full details of what is best execution for us. We are preparing our systems to answer questions from all types of clients – pension funds to private banking clients.

“Five years ago, the PMs would have had an idea and brought the idea to the execution desk, then it would be implemented. The communication between PMs and trading desks was nowhere near as frequent.

“Now it is totally the opposite. The PM needs to ask the trading desk if he is able to implement the idea. Now illiquidity has provided light to the execution desk and we are now emerging as alpha generators and alpha protectors.”

A key player

Today Fernandez-Gomez oversees the execution of equities and equity derivatives as well as the technology for fixed income. Based in Madrid, he works as part of team of six, together with a head of desk.

He says the fixed income team now works closer with the equities team than ever before, which is benefitting both the client and the business.

He explains: “We have clear communication on how markets are developing and we often face the same problems.  We are bringing to fixed income the benefits of electronic trading that we have been implementing in equities over the past five to ten years.”

Like many of his competitors, BBVA AM’s senior dealer says he is hopeful that the future will bring a fully automated execution desk with multi-asset dealer profiles, but the difficulties facing the fixed income market may mean that is some way off as yet.

He says: “Liquidity risk is a problem and, as a result, we have decreased our [fixed income] activity in secondary markets. We are more primary markets here now. It is the only way to capture volume.

“There is huge inactivity and illiquidity in fixed income. There is a lack of activity. All the regulatory and compliance requirements for banks are reducing their exposure to fixed income and their inventories.”