In terms of the decision to outsource, where are you seeing that decision come from?
I would say that it is largely a c-suite level decision, however, there has been a taboo associated with the idea of outsourcing where people think it equates to eliminating your trading team completely, but I think now we’ve moved past that and it’s not so much an opinion we’re seeing.
In terms of who makes that decision of course it is down to the people who are motivated by, and tasked with, looking at overall operating model transformation and cost efficiency – which are generally COO’s and CFO’s.
Those individuals seek experts in their partners and we are very much engaged with CIOs as well as constantly working closely with the heads of trading – the people who are really at the coal face of the complexity around trading and the investment process.
Read more: The TRADE’s The Outsourced Trading Handbook 2023
From our side, we have conversations with both groups across the client base. A key facet of our relationship with those looking to outsource is our connection to the brokerage community. When you have a true buy-side trading team, traders know each other very well, and so when it’s time to onboard – for either a partial or a full outsourcing – those broker connections are really critical in moving forward quickly.
How has onboarding the first clients to BNY Mellon’s Buy-Side Trading Service gone?
We’ve been really pleased that we were able to – in quite a short time frame – establish the workflows and how we support our clients’ needs. Between trading teams, that partnership is a particularly significant component, and it takes time to build those relationships desk to desk.
When you know the expertise is so strong on both sides, you have the ability to speak the same language and create a partnership relatively quickly. Because of that, we have been able to go from start to finish and get up and running with clients in a very short period of time.
BNY Mellon has very strong relationships with our clients, and we’re always thrilled when we get the opportunity to do more for them. These partnerships are a great opportunity to bring a newer capability to long-standing relationships.
Read more: Goldman Sachs AM set to leverage BNY Mellon’s buy-side trading solution
And this has been a great opportunity for us to prove our hypothesis that the level of complexity and the scale at which we are able to support trading in a really streamlined and straight through manner is differentiated.
Truly multi-asset and global investment strategies can be supported through our offering, and I think that that is somewhat new in this market.
How are decisions made as to the structure of the outsourced offering?
We’ve seen the gamut really: cost efficiency, looking to just get more efficient generally; more variability with costs; greater coverage of every market in every jurisdiction.
It’s based on client needs and, importantly, on taking the opportunities that they present to us. We take the time to truly understand the business and spend time looking at their trade data and transaction history so that we can pinpoint opportunities or maybe even gaps that can be filled.
We’re proud of the data science capability that we’ve built out over the last five years or so, our ability to take large complex data sets, analyse it and produce real, meaningful results that help clients understand what the right use of our capabilities might be.
Looking at T+1, which is causing everyone to have a fresh look at how they are managing their trading activity throughout the global cycle, we’re having some key conversations. It’s been very gratifying from our perspective to work with clients who are really forward thinking. It’s those CIO’s, or even heads of trading, who are saying ‘I want to position my institution for the next 10 to 20 years, I don’t want to be holding on to the legacy of the way things have always been done, I want to be open-minded’.
Going on a journey with a client to talk about how this could fit in among a much larger operating model transformation is a really interesting conversation.
Does a big client like Goldman outsourcing have a domino effect?
I don’t think as a standalone that is the case, we absolutely have other clients that we’re actively contracting with who are larger asset managers looking to participate in buy-side trading solutions proactively and for large portions of their trading activity.
A client like Goldman Sachs is definitely not a one off, but on the other side of that, there are many clients who are on a journey. Years ago, it was the middle-office who were contemplating outsourcing and people couldn’t even consider that you would allow somebody into your books and records in that way. However today things are different thanks to sophisticated options being readily available from trusted providers.
I think we’ll continue to see a slow chipping away at different client types but for the moment, those with more pressing situations like T+1 are motivated in a different way to solve problems imminently.
I would also mention the more traditional clients of outsourced trading, the smaller hedge funds, are also broadening their view of the potential of outsourcing – for example, looking at providers to widen the scope of trading – at BNY one can trade derivatives and fixed income, not just equities. A new wealth of opportunity.
Then, for larger hedge funds, we’ll also see a little bit of everything happening over the next 6 months, a year or two years. We can see and feel that the asset management community is responding to the number of providers, the sophistication of providers like ourselves, and of course the significance of seeing their peers make moves in this space.
What’s next for BNY? What’s the priority?
We continue to look to expand the footprint physically and so we’ll be adding more traders to our London office this summer and we will continue to round out the offering that we have for asset owners a little bit more holistically later this year.
The focus currently is just that, continuing to expand the size and scale of the team as our client demand grows and we’re again very fortunate to have such a senior and experienced core team in every asset class which makes it relatively easy to add on capacity as demand grows.
Read more: BNY Mellon to provide outsourced trading solution to the buy-side
In this we’re definitely looking multi-asset, and again, we have teams that are specialists in either equities or fixed income or otherwise and we also have teams that are multi-asset trading so growth will happen across all three of those dimensions.
Currently, of course, what’s been the trend is the expansion away from just equities and so fixed income is probably the next most logical volume traded asset class in the market. But really, for us, it’s completely open.
We trade over 150 investment strategies globally across over 100 markets and fixed income is where we’re seeing people excited about the opportunity to partner for that asset class, but there’s also a lot of further interest in derivatives and other instruments.