Buy-side Perspectives Issue 5 | Page 14

BREAKING BARRIERS Christoph Hock, head of multi-asset trading, Union Investment T he future of trading lies not only in the distinction between different asset classes, but also in a new model which divides the world between high-touch and lowtouch execution – across all asset classes, according to Christoph Hock, head of multi-asset trading at Union Investment. “We won’t organise the trading desk by asset class,” said Hock. “Instead, we will have a high-touch team and a low-touch team. The low-touch team is for liquid names and small trades with very little market impact. It will be fully automated and individual traders will cover all asset classes. At the same time the high-touch desk will be for very sensitive trades, decent size notionals and less liquid assets. And the skill set between the two will be very different.” Hock’s proposal is soon to become a reality at Union Investment, where reorganisation is already underway and is due to be completed within the coming months. Traders on the low-touch team are now expected to hold expertise in how to optimize customised algorithms, 14 how to use TCA, how to monitor the toxicity of trading venues, and how to achieve the best connectivity. In this group, individual traders will trade in all asset classes. Conversely, the traders on the hightouch desk will have a very high degree of specialist knowledge by asset class, because the complexity that comes along with these particular tasks demands it. For example, a small-cap Spanish stock is very different to a high-yield corporate bond. Union Investment estimates that it can automate between 20-30% of its number of orders across the whole business. The company’s plan is ultimately to use these freed-up human resources to additionally focus on the high-touch trading to generate best-in-class trade executions for its investors. Speaking of adding value, these days one doesn’t have to go far to hear reports of the wider shift of the securities markets towards passive investment strategies. The growth of ETFs reflects this, as these baskets of securities essentially combine www.buysideintel.com securities from a variety of different indexes in a given region or class to give investors quick and easy access to the market. “As an active manager seeking to identify alpha, and thereby outperform our benchmark, the role of our trading desk at Union Investment is to ensure that we effectively capture the alpha for our clients. We can be more flexible than a passive fund on when and how to execute, and our traders have the expertise and confidence to exploit that flexibility.” One of the benefits of bringing multiple asset classes together is sharing of market intelligence and making use of the combined knowledge in cash equities, fixed income, FX and derivatives. Traders in different asset classes can learn from each other. August 2016