Buy-side traders need a greater appreciation of the investment process if they are to survive and thrive in modern investment houses, according to a leading CIO.
Richard Lacaille, global chief investment officer, State Street Global Advisors (SSgA), said the asset management business was becoming more and more complex with the bar being raised by clients demanding on the one hand greater indexing products and on the other, increased alpha. And traders needed to respond.
“Asset management is becoming more complex. If you want to continue your career as a trader, you need to better understand asset management,” said Lacaille, who is due to speak at the TradeTech Europe conference in London next week.
He said the challenge will be for asset management to reinvent itself in a world where funds are migrating away from equities into liability-driven investment strategies as the investor’s focus turns increasingly to risk management.
“This move is not just an issue for asset managers,” said Lacaille, who will speak Tuesday morning on how the economic environment and investor sentiment is changing buy-side strategies and priorities. “It is causing pressure on the markets and traders need to think through their own strategies.”
And these strategies need to stretch beyond equities. At SSgA, Lacaille said the firm took the decision to move its fixed income trading into the central trading desk, not because there was any great crossover in specialisation, but because fixed income is changing more rapidly towards electronic trading and the knowledge transfer from equities – such as technology and algo trading – would be beneficial.
“There is always a healthy degree of communication between our desk heads and portfolio managers. At SSgA, trading has a much higher status than at many other places, with the global head of trading reporting straight to me,” said Lacaille. “It is not seen as a back office function. Trading is a risky business which affects performance. A firm’s attitude to trading is a cultural issue.”
But Lacaille warns buy-side firms against going down the path of making traders responsible for alpha.
“All CIOs should be cautious of setting up their trading desk as a generator of alpha as there is a law of unintended consequences,” he said.