“I want people to be constantly pushing the boundaries. To be asking how we can improve and how we can break the paradigm. Looking at what’s new out there and doing something different. To be constantly trying to improve. If you don’t have people that want to do that, I probably don’t want them in my firm, quite frankly.”
This sentiment could be cut straight from the speech of a sports team’s head coach or the CEO of a multi-billion dollar technology giant, but Matt McLoughlin, head of trading at London-based Liontrust Asset Management, clearly believes in the message his words convey: That ultimately, performance is driven by attitude, and that a poor attitude can only derive poor performance.
The search for constant improvement is one that McLoughlin has if not instilled then at the least crystallised across Liontrust’s trading operations during his time with the firm. It’s an attitude that leads him to the gym each morning before heading to the office, where, he says, he draws the energy to keep moving forward.
“Gone is the day when traders could show up, execute their trades and then go home happy,” he explains. “I ask what we can do better and some of those changes may be small, but it’s about being more efficient, reducing risk – I love reducing risk – and improving performance.
“I think the fund managers at the firm are now understanding a lot of this as well. Now we can demonstrate the real, tangible value that we add and, now more than ever, that is really important to recognise.
Having joined the firm in September 2015, McLoughlin took on the head of trading role a year later and has seen Liontrust evolve rapidly during that short period. One of the most significant changes was the firm’s pivot from an equities-only operation to a fully multi-asset trading desk, covering equities, credit, foreign exchange and derivatives, as a result of its acquisition of Alliance Trust Investments (ATI) in April 2017.
The integration of ATI saw Liontrust add £2.5 billion spread across 11 sustainable investment funds, primarily in equities and fixed income, to its portfolio, and McLoughlin views the integration and expansion of the firm’s activities as very successful, particularly for staying ahead of the trend curve.
“Sustainable investment has become very important for all investors, but the firm and the team we brought in have been doing this for years now,” he says. “A lot of people are jumping on the bandwagon a bit late.
“One of the challenges of going from equities to multi-asset was that we had a centralised trading desk in London but fixed income fund managers in Edinburgh, so building that communication and trust was a key challenge. Quite quickly, through numerous conversations and visits, explaining who we were and building up a process, it became easier to manage.”
Like most multi-asset trading desks, Liontrust is able to leverage asset-specific expertise to augment its daily operations, should the need arise. McLoughlin details that the traders on the desk are able to execute trades regardless of product type, but the team is also able to rely on his own past experiences as a credit fund manager while traders Matt Orchard and Martin Hendry bring previous expertise in foreign exchange and equities respectively.
“We can all trade everything, which I think really helps with key man risk and if somebody is off the desk, for whatever reason, the execution quality the fund managers receive doesn’t drop,” McLoughlin explains. “If you’ve got somebody siloed or the fixed income guy is off, you’re in trouble. Somebody might be able to just about it cover and get it done, but ‘just getting it done’ is not what we are aiming to do. It also makes the role more interesting for people, and improves efficiency and cost as well.”
When McLoughlin started with the firm it managed around £4 billion; that figure will have inflated to £17 billion once Liontrust completes its acquisition of Neptune Investment Management. The £40 million deal, announced in late July and expected to close at the start of October, will see the founder of Neptune, Robin Geffen, along with the rest of the Neptune investment team, join Liontrust and continue to manage their respective funds, including its flagship Russia fund.
It will also further broaden the firm’s reach, bringing emerging markets into its portfolio for the first time. “We haven’t really had emerging markets during my time here, so having that offering is really good for us,” opines McLoughlin. “There are China funds in there as well. We trade Asia because we are a fully global trading desk and already run Asian Income funds, but we’ve not had specific China funds before, so that adds another string to our bow alongside our new Central and Eastern European funds.”
All of which feeds into the mindset that McLoughlin so highly prizes: A new project to dive into, something new to sink the teeth into and to make the most of the new opportunities available. To do so in the modern trading environment requires a balance of this attitude and the right infrastructure in place.
It’s perhaps unsurprising then to find that Liontrust are active fund managers. While there has been a significant shift away from active towards passive trading over the last decade or so, McLoughlin says that the industry may now be reaching a tipping point where active once again becomes a much more important strategy.
“I think we’re in that point now where investors realise that markets don’t go up forever, that they don’t go up in a straight line,” he explains. “I think we could be at that inflection point where investors might start becoming more discerning and switching some — not all because cost is always a factor — into active again.
“If you have been in a passive fund for the last ten years you will have been happy; the market has gone in a straight line and you’re fine. But there is a point where markets change and active fund managers, Liontrust in particular, can do well. We’ve been here for a long time, through both good and difficult times and have the consistency of process to meet our investors’ needs.”
For a firm that has sizeably increased both its total assets under management and its geographical reach, McLoughlin is aware that a duality of skillsets is required to both meet its current challenges and to push on into its next evolutionary phase as the trading environment changes around it.
“Having data scientists and programmers is becoming more important in everybody’s infrastructure, and we’re no different; Liontrust has invested in that area,” he details. “Now we on the buy-side are able to harness the data that we have always had, to actually find meaning in it and get it to give us actionable insights. That’s truly exciting because you had it all along, you just couldn’t see it.”
These “hard skills” have become an integral part of the modern trader’s daily routine as the pace of technological development continues to accelerate. The ability to assimilate and interpret data is critical to this, with McLoughlin pointing out that there is no value in possessing “reams of data” if the only result for the desk are hypotheticals; being able to understand fluctuations in the market structure, or even microstructure, and how that will impact on the desk’s trades all result from being able to interpret the data properly.
“Some of the tiny nuances in the market microstructure might seem really unimportant, but when it comes to trading, they can make a huge difference,” he asserts. “The market is going to change all the time, so having characters that want to find out more and make changes before anyone else, to improve things, is a mindset that is really important.
“That’s not to say that it wasn’t important before, but now more than ever because everything is constantly changing. Microstructure, regulation, technology; you can’t be scared of it, you need to embrace it.”
One area of technological development that the buy-side has keenly embraced in recent years is that of artificial intelligence (AI). Liontrust isn’t currently using AI within its processes but McLoughlin says the firm is examining its options and he has had numerous discussions with brokers and other counterparties that are able to demonstrate tangible benefits from having implemented such systems. However, that’s not to say that everyone in the industry is fully on-board with wider adoption of AI models just yet.
“It’s quite exciting, but a bit scary at the same time,” he says. “The scary part is when you don’t understand why it made a certain decision. Sometimes, you’re not going to be able to tell, and that scares people. Uncertainty in financial markets? Nobody likes that. We need to be able to explain things to boards, to investors, to regulators, and you need an answer. That will come in time and we are getting there.”
Yet despite the advancements in AI and ever-increasing breadth and depth of available data, McLoughlin passionately emphasises the more traditional, or “softer”, side of the trader skillset which he believes will continue to play a central role in any trading operation, with relationship management as a defining benchmark for those that perhaps do not possess technical capabilities that extend to coding or building AI systems.
“The key to this business is relationships, both internally and externally, with brokers, investors, fund managers and the media,” he says. “You can spend a long time building up a relationship and trust and it’s that quick [snaps fingers] to break it apart. So, you need people to have those soft skills at the same time as technical knowledge.”
In much the same way that Liontrust has undergone its own periods of evolution with the acquisition of Alliance Trust and Neptune, so too have the markets provided plenty of change for McLoughlin and the rest of the asset management community to contend with. The increasing focus from investors on sustainability is one that McLoughlin believes the firm is now well-placed to make a “positive global impact”. He also points to a generational change that is taking place among a new wave of investors that prefer to manage their pensions via phone apps, rather than the more traditional means.
“The way that they behave in the future will be different to the way they behave and invest now,” McLoughlin says. “That is going to be interesting to see, but I think it will be driven by technology and how easy you can make it for people.”
However, uncertainty has become something of a constant for the financial markets in recent years, with the introduction of MiFID II at the start of last year and the ongoing issue of the United Kingdom’s departure from the European Union, which continues to drag out towards an unknown conclusion. McLoughlin acknowledges both events as significant costs for the asset management and brokerage communities, but recognises the different impacts on the market, highlighting increased barriers to market entry as a result of Brexit — which could in turn reduce competition and increase costs for investors — and that firms won’t be able to handle escalating costs indefinitely.
MiFID II, on the other hand, has had far more measurable impacts on the market, despite a widely acknowledged increase in market structure complexity. McLoughlin also recognises this, but says that with enough hard work put towards understanding the changes, decisions such as venue and broker selection in a post-MiFID II environment become easier.
“I saw MiFID II as an opportunity to try to get ahead of the game, just by trying to understand as much as possible about what was changing and the opportunities it brought, to see where that could enable me to add value to the firm,” he says.
“I think we navigated MiFID II pretty well, particularly the trading landscape, even down to the trade and transaction reporting or going back further to figuring out how we’re paying for research and speaking to all the brokers on the different trading and research models. I don’t get out a lot, so I thought it was quite interesting!”
McLoughlin highlights an increase in innovation levels within the fixed income space, particularly the emergence of all-to-all trading platforms, as one quality-of-life improvements to come out of MiFID II. The mix and variation of trading styles that now exist for multi-asset firms such as Liontrust may cause complications, but it has also been a good opportunity to increase efficiencies via automation, according to McLoughlin, who details that the firm has ramped up its automation levels for some of its asset classes.
He says that the firm is moving towards “semi-automation” in some areas, but that it is not automation for the sake of it, rather another opportunity to focus on the more difficult tasks on the desk. McLoughlin’s approach is to “automate what is sensible”, in terms of improving efficiency and performance, throughout the era of MiFID II, which has allowed the firm to grow. “We had three traders when we were on £4 billion AuM and we’ve got three traders now we’re at £17 billion,” he says. “Not to say that team won’t expand, but we’ve managed to do it by being a bit smarter, by leveraging technology and changing processes to get there.”
While instability and unpredictability seem to be the current modus operandi for the global financial environment due to events such as Brexit or the ongoing US/China trade war, McLoughlin says all of this pales in comparison to the seismic events that rocked the global economy 11 years ago.
“I think 2008 was special, I’ve got to say, when markets were going down 6%, 7%, 8% on a daily basis, that was a bit of a shocker!” he comments. “So this doesn’t touch the sides of that, quite frankly.”
At the time of Lehman’s demise and the onset of the global credit crisis, McLoughlin was a multi-asset trader for renowned hedge fund RAB Capital, having joined the firm a year earlier from AIG where he managed several credit funds. RAB Capital was hit hard by the downturn and saw its AuM shrink drastically over the next year, although McLoughlin also points to a lack of liquidity and prudent hedging as other factors.
Despite the turmoil, he stayed with RAB for six years and retains a number of important lessons learned and fond memories of that time: “Nearly everyone in the City, whoever I meet, they always have a tale to tell about RAB – broker, sell-side, buy-side, everyone does, but I think if truth be told, everyone wanted to work there at the time,” he says. “It was really good fun. A lot of young, smart people working together, and it had very successful periods, but markets don’t just go up in straight lines and no-one stays at the top forever.”
Upon leaving the firm in early 2013, McLoughlin took the opportunity to travel before returning to work with Legal & General Investment Management in 2014 as an equities and derivatives trader, where he gained experience of trading much larger volumes, before taking the call to join up with Liontrust a year later.
One of the defining traits of the firm he says is that people are handed responsibility and expected to flourish, with McLoughlin himself always pushing for continuous improvements from those around him, but that’s not to say that anyone joining the firm can expect to be given an easy ride of things.
“Liontrust hires smart people and gives them responsibility. We give people the freedom to create but want to see results in return,” he says. “People thrive on that, in my opinion, and I really have, as have my team. I’m a believer that people won’t shy away from responsibility and given the opportunity they can achieve great things.”