[ I N - D E P T H
tal trading, the model differs from fully outsourced
trading that smaller funds tend to lean towards by
integrating in-house dealing desks with an outsourced
trading desk.
The idea behind this is that the buy-side client can
use the outsourced trading desk, integrated into the
buy-side workflow under the hybrid model, to cover
geographies that its internal desk does not currently
trade, access parts of the liquidity spectrum out of the
internal desk’s reach, or deal with difficult trans-
actions that require anonymity for minimal market
impact and to preserve alpha.
Hermes Investment Management, a UK-based asset
manager with just under $50 billion in assets under
management, has long-been an outspoken advocate for
the hybrid trading desk model after entering into an
agreement with CF Global to form a desk focused on
emerging market and non-Japan Asia equities. Accord-
ing to Hermes, the decision to outsource was taken pri-
marily for the investment teams trading outside of UK
times zones. Equity transactions related to Asian and
emerging markets portfolios are executed by CF Global
and all other transactions are dealt with by Hermes’
in-house dealing team.
It’s this approach that is expected to spearhead the
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T R A D I N G ]
rise of outsourced trading and
those on the buy-side will perhaps
breathe a sigh of relief to learn that
providers are focused on empow-
ering in-house dealing desks. The
historically negative aspect of front
office outsourcing, often associat-
ed with being a threat to buy-side
traders or general confusion around
how they operate, appears to be
changing, while fees continue to
decline, as costs continue to surge.
Technology will help with this bat-
tle, but it will only get firms so far.
Change is in the air for out-
sourced trading, with industry
estimates that by 2022 at least 20%
of investment managers with assets
under management more than
$50 billion will outsource some
portion of their trading operations.
Perhaps it’s the outsourced trading
route that could prove to be a key
differentiator among buy-side firms
in the future.
Issue 60 // TheTradeNews.com // 55