02.19.2013
By Terry Flanagan

The Market Speaks

Lifetime Achievement

We commenced our one-on-one awards interviews in early December, and not surprisingly we saw a spike in Lifetime Achievement votes for Bill Brodsky (WINNER, see profile) around mid-December, coinciding with the news that he would step down as Chicago Board Options Exchange CEO in May.

“Given he’s semi-retiring, it’s a great time,” said one market source. “He deserves it more than anyone else I can think of.”

Other strong contenders in this category were Irving Kahn and Stephanie DiMarco. Kahn, the 107-year-old chairman of Kahn Brothers investment firm, “was born in 1905 and still goes to the office and runs money every day,” one source said. “He worked with Benjamin Graham himself—he should be recognized just for his sheer longevity in the business.” DiMarco, the founder of Advent Software (see profile) “founded Advent with a $90,000 check given to her at a cocktail party and took the company to where it is today.”

Also mentioned were Ed Hyman, chairman and founder of broker-dealer ISI Group (“he’s been the No. 1 ranked U.S. economist for 33 years. We use ISI for research and trading”), and David Denison, former chief executive of the Canada Pension Plan Investment Board (“he changed the face of not only his organization but every other Canadian public pension plan. Through his vision he has changed the face of institutional investing around the world”).

Lifetime-Achievement candidates cited without elaboration include Robert Whaley, who developed the CBOE Market Volatility Index (VIX); Robert Haugen, a pioneer in the field of quantitative investing who passed away in January 2013; Richard Handler, chief executive of Jefferies; Richard Chambers, chief marketing officer for JPMorgan Investment Management; renowned bond investor Bill Gross of Pimco; and hedge-fund titans Daniel Loeb of Third Point and Izzy Englander of Millenium Management.

Most Influential Company

Bloomberg won acclaim across multiple individual categories, among them OMS/EMS, market data, innovation, and technology. Add it all up and they take the crown as most influential company.

“Bloomberg is very well-managed,” a market source said. “They are a category killer and a leader—clearly somebody that smaller firms such as ourselves would like to emulate.” another source said “they have amazing services, they are very well-respected and very innovative.”

Other firms cited for their influence include JPMorgan Chase, Goldman Sachs, Pimco, State Street, and Credit Suisse.

Institutions

BlackRock was highly acclaimed by a plurality of respondents and as such had some separation from its institutional competitors. With a whopping $3.8 trillion in assets under management, it’s no surprise that BlackRock was cited for its risk management, trading savvy, and influence of its executives.

“Blackrock is very self-sufficient in its technology and data feeds, and they are very proactive in accessing exchanges,” said a market source. Other commenters said “they can move around with little footprint”; “their quantitative side is very innovative”; and their investment professionals are “shrewd.”

Fidelity Investments is another asset-management giant whose trading and markets savvy is respected. “They do everything including a sell-side business, so they are in competition with us,” said an executive at a dark-pool operator. “They do some intelligent stuff.”

Fidelity is an “obvious” top player, one person commented. Another noted “they performed very well last year and are very well-known in the industry for delivering great results on a continuous basis.”

Size—and depth of pockets—matters when it comes to an asset manager’s technological systems, market-structure know-how, and trading efficiency. “T. Rowe Price is very strong in all those categories, as is Franklin Templeton and Invesco,” one source said. “These groups look to be really self-sufficient in managing their business—how they take in data feeds themselves and manage their own technology.”

ING Investment Management was cited for “innovation in how they manage liquidity (execution) and how they pay their bills, which covers research and commission dollars,” one market source said.

Another market source lauded Schroders Investment Management and its head trader, Rob McGrath. “They are forward-thinking about the role of the head trader and how that can enhance value for clients,” the source said. “They are much better at the business side of the trading desk, where some others are just traders. Also, where some firms are balkanized across desks, Schroders isn’t.”

Said another person, “Schroders has a multi-asset approach, especially in the U.S., that they started several years ago and they do in a very skilled way.”

Principal Global Investors (“one of the most dynamic”) was also mentioned as a large institution worth of recognition, as was State Street Global Advisors, Columbia Management, Pimco, Lazard Asset Management, and Gresham Investment Management. Among endowments, Duke Management earned mention, while Rockefeller Foundation won praise in the foundation space.

Moving a rung down the assets-under-management ladder, “American Century Investments in Kansas City is a well-known brand, and a really interesting buy-side story,” a source said.
“They’ve been around a long time, but in the last couple of years—which have been challenging for the buy side—they have increased AUM.”

Janus is a really innovative firm in how they think and in how proactive they are, but they can’t do the things T.Rowe does, like internal IT,” a source said. “That doesn’t mean Janus isn’t an innovative company.”

William Blair earned mention for “how they manage their business and the way they rotate staff through positions,” one person said. “They have smart people-management skills.”

Rainier Investment Management (WINNER, see profile) “is really forward-thinking and proactive in how they treat their sell-side partners and how they access public markets,” a person said. “They’re doing some nimble and interesting things.”

According to another source, Batterymarch Financial Management “is good from a technology perspective—the way they embrace tech and push the envelope in trying to get their traders the best tools.”

Hedge Funds

There are thousands of hedge funds in the U.S., which makes it all the remarkable how frequently one name came up for its savvy regarding market structure, trading and technology: Bridgewater Associates.

“Don’t mess with the cult” was how one online commenter succinctly assessed the stature of the hedge-fund giant, which manages a reported $130 billion.

“They are one of the best as far as performance goes,” another source said. “They certainly have excellent management and a great reputation in the industry.” Another person noted Bridgewater’s brand name is “phenomenal,” while another said the hedge fund is “far ahead” of peers when it comes to innovation.

Other ‘name-brand’ hedge funds who garnered praise include AQR Capital Management (“it’s a $56 billion fund that still runs quant and makes money. They have unbelievable models and they are good at using technology to their benefit”), Renaissance Technologies (“they are the best, quite known in the space for their technology systems”), Citadel Asset Management, Och-Ziff Capital Management, and Third Point.

But the best intelligence is often about the less well-known names. One market source cited Elliott Associates for excellence as follows: “they pretty much never lose money. They have a whole team dedicated to hedging their portfolio.” UBS O’Connor won kudos, as one source said “they have a methodology platform evolved from banks’ prop trading desks, one of the best in the industry”; another person said UBS O’Connor employs “probably the best derivatives traders on Wall Street.”

Mid-Sized Hedge Funds

Moving down from the top of the hedge-fund pyramid, there are several lesser-known hedge funds that merit recognition.

Two Sigma (WINNER, see profile) and Alyeska are both very sophisticated,” said an electronic executive from the sell side. “They know what they’re talking about and they ask the right questions.”

Said another market source, “what’s important for hedge funds is how they embrace technology and try to push it forward to do what they need to do to compete—having a forward eye. Viking Global Investors and Maverick Capital are two such best-of-breed firms. There is no moss growing under their feet—they are continuously pushing and pushing.”

Geode Capital also garnered mention. “They are really innovative in the way they think, across the board,” a source said.

Start-Up/Emerging Hedge Funds

The smallest and newest hedge funds aren’t interesting for their influence on the market, but rather for what their futures may hold.

“One firm that has raised a fair amount of money is Raven Rock Capital, a fixed-income fund based out of North Carolina,” said a source. “They have a decent-sized team and they have generated pretty strong numbers. They seem like a quality shop.”

“I think Phalanx Capital is ready to take off,” said another market source. “They had a very good 2012. They do some market-neutral stuff with a focus on Asia, as well as some volatility trading and unique convertible bond arbitrage trading. A lot of people are trying to figure out where to put money, because many strategies don’t look as attractive as they used to—they could be a fund to watch in 2013.”

Peak6 Advisors was also mentioned as an emerging fund to watch, as was Eaglevale Partners.

Sell-Side Trading Desks

While one source noted that the sell-side space is “very competitive and nobody really stands out,” we found no shortage of opinions as to which electronic trading desks deserve recognition.

Best Algos and Automated Execution

In the area of providing products and services for quantitative traders, Credit Suisse (WINNER) garnered high praise.

“Eugene Choe of Credit Suisse runs their automated execution desk, which leads algo execution for the industry,” said one buy-side quant. “If you want algos and automated execution, they are just the #1 player.”

Best Technology Provider

When talking about sell-side technology, the distinction to note is that sell-side desks provide the technology for buy-side clients but the technology itself is developed by third-party vendors. Goldman Sachs (WINNER, see profile ) wins the prize for best technology provider.

As one market source explained, “Goldman is very good. Whether it’s deployment, implementation, interaction, or certification, at every touch point there is with a bank to get a client live or to provide a new update or a new product, dealing with Goldman generally results in the least amount of friction. They have the latest and greatest technology, and they provide clients with the ability to take advantage of it—you can be very innovative and have great technology, but if nobody gets to access it, it’s not worthwhile.”

Barclays won mention. “Their technology is very tuned in to latency and global connectivity, and how they’ve entered into different marketplaces,” one person said. “The infrastructure that underpins the product set is very strong.”

Another source said “if you’re talking non-SaaS (software as a service), then I might be inclined to pinpoint Morgan Stanley. They put a tremendous amount of effort into combining systems in 2012 and the net result is quite impressive. I might also pinpoint JPMorgan for similar reasons.” A Bank of America Merrill Lynch client said “we are very happy” with BAML’s tech offerings.

Other sell-side desks who were cited for their technology offerings include Credit Suisse, Societe Generale, UBS, Nomura, and Weeden.

Best Dark Pool

Liquidity begets liquidity, so Credit Suisse Crossfinder (WINNER) is the Big Kahuna in this category.

“Crossfinder is king and you would be hard-pressed to pass them by,” one source said. “Their technology is very impressive,” said another person.

“Credit Suisse has excellent dark pools,” said another source. “They have a very, very good trading platform, and some of their products are exceptional. I like Advanced Execution Services.”

UBS PIN garnered praise. “We look at some dark pool comparative analytics and it seems like on a very consistent basis, they’re always just five basis points better than anyone else,” said a market source. “They’re getting more order flow.”

Knight Link, operated by Knight Capital, “does a great job with their ability to bring in the client, versus backfilling it with bank-owned flow,” said a market participant. Goldman Sachs’ Sigma X also won praise.

Best Overall

In one of the most highly competitive heats, Bank of America Merrill Lynch (WINNER, see profile ) narrowly edged out a host of competitors including Goldman Sachs, Credit Suisse, and Deutsche Bank.

“I love (Bank of America) Merrill (Lynch),” one customer said. “Merrill’s technology is really good. Their platform is very user-friendly, and it has an incredible amount of info. Their technology desk service is great, and coupled with research, they do an all-around bangup job.” Another market participant liked BAML for its consistency.

Goldman Sachs’ professionals “are truly superb,” one source commented. Said another, “Since 2009, when most large broker-dealers became banks, people have been trending toward Goldman and other large banks. In prime brokerage, the clear leaders are Deutsche Bank, Goldman, and JPMorgan Chase. In fund administration, the leaders are Goldman and JPMorgan.”

Credit Suisse won accolades for its innovation, specifically pertaining to Advanced Execution Services, and its suite of algorithmic trading strategies, tools and analytics. “Nobody else can even dent their paint,” said one market source. Another person said Credit Suisse “continues to provide good products and good insight and be a leader in this area.”

Deutsche Bank won praise for various products including FX trading platforms and short-term alpha models. Two DB executives were singled out for praise: John Cogman, director of Autobahn Equities, and Jose Marques, head of equity electronic trading.

Cogman “compiles and sends out information that’s really damn useful, unlike so much other (stuff) you get sent that may look nice on a bookshelf but I’ll never look at it,” said one buy-side quant. “It’s very much a value-added product.” Regarding Marques, a market source said. “Look at his track record, what he has done with Autobahn (WINNER, see profile) and how it has improved. DB now is a contender and approaching top-five in electronic trading, and they have also boosted the derivatives business.”

One sell-side firm cited as an up-and-comer is ISI Group. Over the past couple years, “they have really grown the most in terms of market share and customer appreciation” said one market source. “They’ve added a whole slew of weapons to their arsenal and have gone from being a CSA check-receiving desk, to really being high-value and high-touch with great research.”

Other firms mentioned in best-overall discussions include Barclays (“they have done a really good job of building out their FX capabilities”); JPMorgan (“this is all around building a better factory to manage flow and have a cost-efficient organization…they are running a better, more efficient factory”); Citigroup (“they are a good firm in many different ways”), Morgan Stanley, Nomura, UBS, and RBC.

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