An established truth in institutional fixed income markets is that there is no silver bullet for the endemic liquidity shortfall; rather, diverse sourcing that includes electronic platforms, all-to-all and old-fashioned voice is indicated.
So it stands to reason that top fixed income trading desks take a multifaceted approach to their mission of buying and selling securities as efficiently as possible.
AB, the investment manager formerly known as AllianceBernstein, leverages four main components in its fixed income trading: human capital, integration of teams, innovation and ingenuity, and a global platform.
Jim Switzer, head of credit trading at AB, cited personnel as the most important ingredient, in light of the evolution of the buy-side trading function from a clerical execution role to a dynamic, risk-taking role.
“Today, buy-side traders are ‘price makers’ for their firms,” Switzer told Markets Media. “With sell-side balance sheets dramatically reduced, trading flow has reversed: dealers come to the buy-side now to ask us to determine a price, take on the risk, and redistribute that risk within our portfolios.”
“AB identified this trend early on and recognized that doing that well would require a completely different trading mindset and skillset. So we began investing in our traders,” Switzer continued. “AB traders today not only have a lot of trading experience, but they also, importantly, have a risk-taking mindset. We also look for the ability for our traders to teach and mentor.”
AB, which manages about $250 billion in fixed income, has earned praise for ‘punching above its weight’ in institutional circles. The trading operation does well to seamlessly move execution and run an open portfolio in terms of internal systems interacting with external systems. AB is the 2016 Markets Choice Award winner for Best Buy-Side Fixed Income Trading Desk.
Regarding integration, Switzer said AB has committed to portfolio management, quantitative and fundamental research, and trading acting as one team. This leverages the diverse perspectives of each function for the benefit of the client, for example by better positioning AB to act rather than react in identifying and exploiting market inefficiencies.
AB’s innovation largely pertains to technology. “We are always looking for ways to increase our scale and our efficiency,” Switzer said.
For example, AB technologists created Automated Liquidity Filtering and Analytics, an in-house liquidity aggregator. “This tool recognizes that there are many electronic platforms out there, and each trader has only one set of eyes,” Switzer explained.
ALFA “consumes information from all of the liquidity pools — MarketAxess, Bloomberg, Tradeweb, Electronifie, Liquidnet, to name a few — real-time, and then notifies our traders if something is happening in the market that we should be paying attention to,” he said. “We’re also very involved buy-side trading with other buy-side firms, so much so that ‘All-to-All’ platforms are now a Top 10 counterparty for AB.”
AB has 46 locations in 21 countries, and the investment manager uses its far-flung presence to its advantage. “We maximize the benefit of diverse global perspectives by requiring each team to work within a single investment infrastructure and framework, including one single centralized global trading desk,” Switzer said. “This single platform permits us to best leverage our best global thinking and trade ideas across all appropriate client portfolios.”
“All traders on this desk are empowered to go wherever the liquidity and best opportunities are,” Switzer added. “We don’t trade dollar bonds just in the US, and we don’t trade euro and sterling just in Europe. We trade in whatever currency is most attractive and in whatever market is offering the best liquidity.”