(R)evolution of the Buyside FIX Conference - Australia March 2009 - - PowerPoint PPT Presentation

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(R)evolution of the Buyside FIX Conference - Australia March 2009 - - PowerPoint PPT Presentation

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(R)evolution of the Buyside FIX Conference - Australia March 2009 Richard Coulstock, Director, Head of Dealing Prudential Asset Management (Singapore) Limited For investment professionals only; please read disclaimer on the last page

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“(R)evolution of the Buyside”

FIX Conference - Australia March 2009

Richard Coulstock, Director, Head of Dealing Prudential Asset Management (Singapore) Limited

For investment professionals only; please read disclaimer on the last page

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Today’s Presentation

  • About Prudential and my background
  • Dealing desk evolution
  • Developing a dealing desk
  • Is your desk equipped?
  • DMA/Algos
  • Access to Liquidity
  • TCA - How to use the data
  • Perils and Pitfalls
  • Summary

For investment professionals only; please read disclaimer on the last page

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For investment professionals only; please read disclaimer on the last page

Institutional fund manager managing U.S. public and private fixed income, public and private equity, structured finance and distressed debt. Founded in 1931, M&G was acquired by Prudential in 1999 and is the Group's UK and European fund manager. Investment teams in 8 markets. PAM Singapore manages Asian Fixed Income and PAM Hong Kong manages Asian Equity, for retail & institutional customers.

Source : Prudential Asset Management, M&G, PPMA

FUM: US$77.3 billion as at 30 June 2008 FUM: US$317 billion as at 30 June 2008 FUM: US$68 billion as at 30 June 2008

More than 450 investment professionals in global asset management teams

Investment Businesses on Three Continents

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Strong Regional Presence

For investment professionals only; please read disclaimer on the last page

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My Career

  • Currently based

in Singapore

  • Previously in

Abu Dhabi

  • Scottish Widows

in Edinburgh

For investment professionals only; please read disclaimer on the last page

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My Role

  • Head up a team of 9 dealers
  • Multi-asset – equities, fixed interest, derivatives, forex
  • Pan-Asian and Latin American Equities
  • Other instruments to give more global exposure
  • Ensure team is well equipped in terms of systems and training

to adequately perform their duties

  • Ensure trading is carried out as efficiently as possible

For investment professionals only; please read disclaimer on the last page

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Dealing Desk (R)evolution

Then Now

Buyside Sellside

For investment professionals only; please read disclaimer on the last page

Buyside Sellside “Seesaw of Responsibility”

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Dealing Desk (R)evolution

Then

Sellside

  • Had to use broker for market access
  • Better knowledge
  • Better systems

Now

Buyside

  • DMA/Algos
  • Increased transparency/flow of

information

  • Advanced Execution Management

Systems

  • Increased focus from clients and

regulators on buyside dealers

  • TCA

“Empowerment of the Buyside”

For investment professionals only; please read disclaimer on the last page

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Developing a Dealing Desk

  • People

Stable, experienced, reliable

  • Workflows

Desk undertakes appropriate tasks

  • Systems

Able to cope with changing environment

  • Access to Liquidity

Are you missing out on liquidity pools?

  • TCA

Measure your dealers and relationships

  • Algos/DMA

Relevant? Able to access?

For investment professionals only; please read disclaimer on the last page

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Systems - Is Your Desk Equipped?

  • TCA accuracy depends upon quality data
  • OMS/EMS – several out there, do full due diligence
  • Access to Liquidity Pools
  • Appropriate counterparty lists
  • Freedom to deal where appropriate

For investment professionals only; please read disclaimer on the last page

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Tasting the Liquidity

  • Liquidity slowly moving away from

traditional exchanges

  • U.S./Europe trends tend to move to Asia
  • Asia more complex - multi-

market/regulations

  • Japan – JapanCrossing, CBX, SBI

Japannext, Kabu.com and others

  • Regional – Liquidnet, Blocsec, Chi-X,

ITG Posit

  • Australia – AXE ECN

For investment professionals only; please read disclaimer on the last page

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DMA/Algos

  • Increasingly popular
  • Trade management
  • Anonymity
  • Cost reduction
  • But manage the process
  • Not a “plug and play” panacea

For investment professionals only; please read disclaimer on the last page

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Transaction Cost Analysis

TAXES COMMISSION SPREAD Explicit Costs 22% Primarily Brokerage Commissions MARKET IMPACT Implicit (Hidden) Costs 78% Delay Cost Timing Gain/Loss Market Impact Opportunity Cost DELAY

For investment professionals only; please read disclaimer on the last page

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Choosing a Benchmark

Clarify Role of Dealers

  • Dealing is an integral part of the overall investment

process, not a ‘stand alone’ operation

  • Dealing role is to access liquidity and avoid market impact –

with the application of common sense. In effect to implement an investment decision that has already been made

  • Choose a benchmark that best suits your profile and overall

investment process

  • Seek external advice

For investment professionals only; please read disclaimer on the last page

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Benchmarks

  • VWAP

Treats dealing as a stand alone operation. Does measurement against a fairly random intra-day price really tell you execution quality?

  • I.S.

Treats dealing as a part of the overall investment process, making dealers aware of the execution impact on underlying funds

Dealing is the implementation phase of the investment cycle

For investment professionals only; please read disclaimer on the last page

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Implementation Shortfall

  • Dealing is an integral part of the overall investment process
  • Very simply – difference between decision price and execution price
  • Can break into three main sections
  • 1. Decision point and order reaching dealers
  • 2. Delay/discretion dealer  broker
  • 3. Broker  execution
  • Can help highlight costs but does not necessarily distinguish between good

and bad trades

For investment professionals only; please read disclaimer on the last page

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How to Use the Data

  • Be clear on what you are trying to measure
  • Data cleansing
  • Large enough dataset
  • Process buy-in from all involved parties
  • Internal and external measurements
  • Measurement of relationships, not brokers
  • Act on the data!

For investment professionals only; please read disclaimer on the last page

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How to use the Data

  • Program and

single stock performance on a ‘difficulty adjusted’ basis

  • Line represents

‘going public’ with data

  • Be transparent

and act on data

For investment professionals only; please read disclaimer on the last page

For illustrative purposes only

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How to Use the Data

  • Overlays performance and percentage of t/o received
  • Direct business to consistent better performers

For investment professionals only; please read disclaimer on the last page

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How to Use the Data

  • Get Tough but be fair
  • Don’t just get reports and

file them

  • “Acting on Results”

doesn’t necessarily mean removing brokers from execution lists – can mean changes in process

  • r coverage
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Perils and Pitfalls

  • Nothing is as simple as it seems!
  • Very little is “plug and play” despite what you may get told
  • Involve I.T., legal, compliance, operations
  • Regulatory disclosures
  • Internal buy-in to changes in workflow and benchmarks
  • Counterparty Risk

For investment professionals only; please read disclaimer on the last page

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Summary

  • The dealing landscape has changed

and will continue to do so

  • Responsibility has shifted to the

buyside

  • Increase buyside accountability with

appropriate measurement

  • Client and regulators forcing buyside

to “up their game”

  • Be professional and transparent
  • People, workflows, systems – the

key ingredients

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Disclaimer

  • This presentation has been prepared by Prudential Asset Management (Singapore)

Limited (“PAMS”) and is solely to be used for informational purposes. This presentation may not be copied, published, circulated, reproduced or distributed in whole or part to any person without the prior written consent of PAMS. In preparing this presentation, PAMS has relied upon and assumed the accuracy and completeness of all information available from public sources or which was

  • therwise reviewed by PAMS. Unless otherwise stated, source of information is

from PAMS. Accordingly, whilst we have taken all reasonable care to ensure that the information contained in this presentation is not untrue or misleading at the time

  • f publication, we cannot guarantee its accuracy or completeness and make no

representation or warranty (whether express or implied) and accept no responsibility or liability for its accuracy or completeness. You should not act on the information contained in this presentation without first independently verifying its contents.

  • Opinions, estimates and projections in this presentation constitute the current

judgments of the speaker as of the date of this presentation and are subject to change without notice. They do not necessarily reflect the opinions of PAMS or its affiliates and are subject to change without notice.

  • PAMS is an indirect subsidiary of Prudential plc of the United Kingdom. PAMS and

Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America.

For investment professionals only; please read disclaimer on the last page