In an industry where change is widely inevitable, the relationship between the two appears to be irrevocably evolving.

Market structure changes, regulatory pressure, ever-increasing technological innovations, and data challenges are all key contributors to firms’ need to continually revise and reflect on their approaches. 

Across the trading ecosystem, it is becoming clear that in order to be successful and achieve goals, an ever-more holistic approach is vital, including when it comes to the way in which traders and portfolio managers work together.

Speaking generally, head of trading for the London-based fixed income trading desk at RBC BlueBay Asset Management, Stuart Campbell, asserts: “Anywhere where the product is less homogenised, less commoditised, less liquid is the kind of space you would expect that the relationship needs to be quite tight between the PM and the trader.

“It comes down to how individuals are utilising the extra information. Who’s using that data, is it traders using it to help them form their portfolio managers’ portfolios or the other way around? It depends on how the shop is set up as to what, how, and who is using the data and what they’re doing with it.”

Office set-ups

In the past it may have been more common to see a clear distinction between a buy-side firms’ portfolio management teams and trading desks where the two groups were relatively segregated. However, current set ups indicate a change over recent times, wherein a coming together of the two sides has occurred on a tangible level. 

Speaking to The TRADE, Tobias Stein, head of fixed income and trading at Quoniam Asset Management, confirms that currently his team’s set-up at Quoniam has PM’s and traders working in close quarters, constantly talking as the investment manager has them based in the same room.

He explains that though relationships between the two sides are different across asset classes, on the fixed income side, there is a very long history of collaborating closely together.

“Specifically, some 10 or 15 years ago there was a lot of portfolio managers actually trading by themselves but eventually the separation of roles made sense, but now the two sides are coming closer together as they work towards a common goal.

“[…] The increase in trading frequency of course will require more frequent interaction between traders and portfolio managers. This is where we see that shift back to a more centralised process – where previously they were further apart, now the two sides have come back to close quarters.”

Similarly, a source from Aviva Investors confirms that portfolio managers and traders at the firm also work in close proximity, with the knock-on effect of the Covid-19 pandemic working as a clear catalyst for increasingly hybrid and flexible set-ups.

“We all sit close together in one area, which is great for collaboration. Anyone could just walk over to someone’s desk and discuss something or ask some questions […] In addition, having a set number of days in the office where everyone comes together also definitely helps. A hybrid approach with room for close contact where possible.”

Read more: Pioneering a hybrid organisational structure 

Moreover, RBC BlueBay Asset Management’s set-up also mirrors this approach. Campbell highlights that the firm has made a conscious decision to have traders and portfolio managers sat on the same part of the floor as part of its key strategy.

“We’re really looking to get more out of our traders, to have them think like a portfolio manager is how we’ve always been set up here. We’ve always said in order to get the most benefit out of the trading team, they have to be thinking like a portfolio manager. We’ve said that for many years now – they need to know what’s in the portfolio, they need to know what the targets are for the bonds that we might hold, are they getting close to the targets.

“In some instances, we’ve had our traders sat right beside the lead PM of the strategy and they worked in tandem.”

Demonstrably, the buy-side has been adjusting and recognising how PMs’ and traders’ increased interconnectedness can be leveraged to enhance execution.

Technology as a catalyst for change

Each buy-side firm has a different strategy and thus by definition has a distinct operational set-up, with unique focal points and ways of working. However, the common denominator amongst them when it comes to their approach is clear to see – the desire to ensure efficacy through increased electronic trading and data, while maintaining low costs.

When it comes to the potentially converging roles of portfolio managers and traders this is key. As innovations gain traction, lower value trades are becoming easier – and quicker – to execute. We are not yet in a place to consider a pie in the sky future where the trading desk is skipped altogether, however there are some interesting shifts happening. 

Despite some real fear across those operating in the capital markets – there is understandable trepidation when it comes to what the integration of ever-more sophisticated systems could entail – the prevailing notion is that technology developments are tangibly allowing trading desks to spend more time on the less liquid and harder to trade elements.

Read more – The buy-side on AI: ‘The fear is real, but the rewards are there’

In the end, tech is a facilitator to the means of working changing, confirms Stein, who adds that the key to the process in fixed income is exactly the close collaboration between tech, trading and portfolio managers.

He highlights that in fixed income historically, PMs were also trading as well, specifically in the more illiquid segments of the market. 

However, as he explains: “Alpha is the number one thing in terms of active strategies and execution, but tackling the liquidity challenges is the second biggest thing, and this is only addressed by each side collaborating.”

As well as internally making the most of what both teams have to offer, the ever-present outsourcing conversation is also relevant here, where firms continue to look for ways to allow their expert in house traders to make the most of their time and focus on only the highest value trades.

Recently, Groupama Asset Management entered a strategic partnership with Amundi Intermediation in which the firm combined its team of traders with Amundi’s offering in a bid to optimise its performance through improved access to a wider range of activity with increased negotiating power. 

Notably, Amundi Intermediation’s international teams – which consist of over 60 staff – includes asset allocation services, specifically portfolio management.

Speaking in the May announcement, Eric Heleine, head of the buy-side trading desk at Groupama Asset Management, explained that the combination was precisely a direct result of ever-increasing technological developments across the industry: “With Amundi Intermediation, we share the conviction that execution is changing radically with rapid and global digitalisation.” 

Read more: Fireside Friday with… Groupama Asset Management’s Eric Heleine 

The roles PMs and traders play is directly affected by which direction technological updates are taking, but how far could this go?

Campbell highlights that from the perspective of RBC BlueBay AM, a so-called crossover between traditional and hedge fund, when it comes to the credit markets the increased amount of pre-trade data which is now available makes it “far more palatable” for a trader or portfolio manager to make the decision on how to handle flow.

He adds: “Nowadays, you react to live axes in the market and say ‘I want that’ and take it, rather than go and seek the bonds in the first place. Previously this was the role of the trader, but nowadays a portfolio manager can get such good live data coming in that it could be the role of the portfolio manager themselves. 

“[…] in algorithmic pricing auto execution there is the ability to maybe allow very low value add trades that the trader spends time clicking, but really not generating much value from, to flow straight through.” 

In this instance, a PM is theoretically creating an order which subsequently passes through established rules, enters the market and then returns without having even seen the trading desk. 

Speaking to The TRADE in 2022, Christoph Hock, then head of trading at Union Investment highlighted that the asset manager was undergoing an evolution, becoming one unified multi-asset trading desk in a bid to execute a bigger percentage of orders sent by portfolio managers. 

“Take a protocol like portfolio trading. That was just one way of trading equities five-to-10 years ago and now it’s widely accepted in fixed income […] that’s something you are missing when you do not holistically look at trading and assure that the individual asset class-based traders are talking to each other,” asserted Hock.

Notably, these methods are more likely to be the case for buy-side houses which opt for smaller teams, where the overlap of duties is already more prevalent.

Speaking to The TRADE, a source from Aviva Investors confirms that their own firm is a very traditional buy-side house where the PM’s and the traders have specific, distinct roles, and as such one “couldn’t really see in the near future a world where the PMs would access the market directly”. 

“For the bigger institutions it’s very separated because there’s different responsibilities, and different skill sets.”

Wearing many hats

With the idea of individual skill sets in mind, many across the industry are of the opinion that while certain attributes, and indeed certain tasks, are exclusive to either PMs or traders, this does not necessarily mean that either side is not increasingly wearing different hats (be it by choice or necessity) or even that the tasks they do are not overlapping.

A buy-side source tells The TRADE that within their firm, “a lot of the PMs are now engaged in the analytics a lot more, which is great to see.”

They add: “That really helps because if they’re engaged in the analytics, they can use the data to adjust their strategies […] PMs are out and about a bit more now. They’re seeing more of their clients. As they’re out of the office a lot more the desk and people on the analytics side have taken on a bit more responsibility.”

The idea of using key data to adjust strategies is a key component of how many houses are looking to innovate, with various industry discussions having focused on exactly this over the last calendar year.

Many experts are adamant that a desk should be imbued with a data-driven approach, as long as there is the ability to interpret the information at hand – bridging the gap is important.

Clearly, firms are taking note. As Campbell highlights, “the new skill set coming about in recent years has been the ability to code or analyse data where historically it might have been about relationships […] it’s becoming important not to lose sight of the technological needs.”

On the other hand, Campbell adds that the people skills of the trader should not be sacrificed in the pursuit of this.

“The trader still needs to be on that relationship side, bringing liquidity because when it’s needed you’re hoping that they will pick the phone up to you and not the other two or three people that are also calling.

[…] When markets are volatile or there’s a major global event like Covid or Ukraine everything stops and you revert back to your old school relationship.” 

Read more: “They’re the perfect trader”

Indeed, it’s important to remember that the size of firms and their established focus is a very big factor in terms of how trading teams and portfolio managers interact, wherein being a jack of all trades could be both less attractive and less necessary.

“I get both sides of this argument, where people obviously think you should be specialised in your role and should just be focused on your responsibilities,” says a buy-side commentator, adding: “[…] In the smaller houses, you have to almost wear lots of different hats and be involved in different areas, whereas with the bigger houses it’s a bit more separated and people have their own responsibilities.” 

Evidently, the ability to have a good view of the market, established relationship with the sell-side, a handle on key analytics – i.e. straddle the line – is becoming increasingly valuable, in particular where teams, and indeed firms, are of a smaller scale.

“A small shop with just a couple of portfolio managers may be operating in the hedge fund spaces and they may be doing their own trades, in which case they’re acting as a PM central trader anyway. In those instances, they’re probably happy to see a lot of the heavy lifting is getting done for them by the technology. If you go to a big trading team of 30 or 40 traders then you would want to leverage those folks,” asserts Campbell.

Looking at the overall picture, for portfolio managers it is more difficult to spread responsibilities too widely, and so an increased scope could be better suited to traders. 

“From my perspective the end game would not be the roles being essentially the same. However, working together – the PMs and traders – on an end goal of increased systemic strategies is something that is in process,” concludes Stein. 

Across the trading ecosystem, technology continues to be a catalyst for change when it comes to both the role of the trader and the portfolio manager – whether this be as regards their physical set ups or the increasingly varied responsibilities being integrated into their everyday duties.

While each role has concrete elements, key traits and features which – for the time being at least – appear immovable, the pursuit of the most effective, holistic, approach is demonstrably having a firm-wide effect on buy-side PM/trader relations.

As we move forward, achieving success is set to increasingly be a question of how these teams can work together, as opposed to merely alongside each other to ensure the most efficient value chain possible.

The post Trader and PM relationships: A holistic approach is key to success appeared first on The TRADE.

Edward Tilly was named president at Clear Street, 10 months after he resigned as chief executive of Cboe. In the role, Tilly is set to work closely with Chris Pento, CEO of Clear Street, jointly leading the firm through the next phase of growth. Tilly resigned as chief executive of Cboe in September 2023 following the conclusion of an investigation – launched in August – that determined he had failed to disclose personal relationships with colleagues. During his time at Cboe, Tilly was a driving force behind Cboe’s acquisition of BATS Global Markets in 2017, as well as overseeing the launch of products including 0DTE options.

Flavio Paparella was named managing director within BTIG’s global emerging markets fixed income group, joining from Seaport Global Holdings where he also served as a MD focused on LATAM fixed income. In the new role, Paparella will be based in New York and is set to focus on Latin American markets, as the firm seeks to expand its presence in the area. He will report directly to Stuart Kasdin and Pablo Melasecca, co-heads of Latin America and EMEA credit emerging markets. Previously in his career, Paparella ran the institutional structured products Latin America desk for RBC Capital Markets. He also previously served as managing director at both American Express Bank International and Deutsche Bank, Argentina.

Edmond de Rothschild Asset Management appointed Regine Wiedmann as head of distribution for the DACH region. Wiedmann brings more than 18 years of experience in asset management and sales in the German-speaking markets. She initially joined Edmond de Rothschild AM in June 2021 as co-head of sales Germany and Austria, later being promoted to head of sales Germany and Austria in January 2022. Before joining Edmond de Rothschild, Wiedmann served as an executive director at Goldman Sachs Asset Management, responsible for wholesale clients in Germany. Before that, she co-founded Vicenda Asset Management in Zug, Switzerland. Elsewhere, Wiedmann was head of marketing and key account manager at the investment boutique Tiberius Asset Management, also based in Zug, Switzerland.

NatWest Group named Jonathan Peberdy chief executive of NatWest Markets, following 11 months as deputy CEO. The appointment is subject to regulatory approval. Peberdy has been with the business for 25 years and has previously served as head of capital markets. He succeeds Robert Begbie, chief executive, commercial and institutional. NatWest Markets confirmed that Robert Begbie would assume the role of chief executive permanently back in June 2020, having led the business on an interim basis since December 2019. At the time, his appointment was a key feature of the first major leadership restructure by Alison Rose, the chief executive of RBS.

GLMX appointed David Nicol as head of commercial operations. Nicol was promoted to the role after initially joining GLMX as a consultant in December last year. Previously, Nicol served as chief executive and co-founder of corporate bond trading ecosystem LedgerEdge. Before serving at LedgerEdge, Nicol spent nearly two and a half years at R3, most recently serving as a product manager. This followed a five-year stint at IBM, where he also served as a product manager.

Liquidnet appointed Jeffrey Crane head of international for the Americas, as part of the firm’s continued investment in its cross-border business. Crane brings more than two decades of experience in institutional equity trading to the role. He joins from SageTrader where he most recently served as managing director and head of sales, overseeing new business growth for domestic and international trading. Before that, Crane spent more than 20 years with Instinet where he held various positions, including managing the firm’s cross-border business as head of the international desk in New York.

Honor Woods was appointed equity trader at RBC BlueBay Asset Management, based in London. Woods has previous experience working in the institutional equity trading team at AB Bernstein.

The post People Moves Monday: SSGA, Clear Street, BTIG and more… appeared first on The TRADE.

Woods has previous experience working in the institutional equity trading team at AB Bernstein.

Earlier this year, Michael Tamou left RBC BlueBay Asset Management for quantitative investment manager Qube, having also served as an equity trader. 

He was recognised as a Rising Star of Trading and Execution by The TRADE at Leaders in Trading 2023.

Read more: Making European equities great again 

RBC BlueBay Asset Management’s equities team works directly alongside the fixed income team following the latter’s reabsorption by RBC at the end of 2022.

Speaking to The TRADE last year, head of trading for the RBC BlueBay Asset Management fixed income trading desk Stuart Campbell highlighted that the institution’s combined size was a new strength for the firm. 

With the equities and fixed income desks sitting on the same trading floor, the two teams are able to collaborate more on cross-product client strategies, added RBC BlueBay AM trader Philip Steel. 

The post RBC BlueBay AM appoints new equity trader appeared first on The TRADE.

The market is already pricing in rate cuts in Q1 although I, along with many others, don’t believe they will begin before the end of H1. This uncertainty will lead to heightened equity volatility in 2024. On top of this, many more companies will need to refinance their bonds in 2024 than they did in 2023 and higher rates will make this an expensive exercise. Finally, the era of QE is well and truly over and the investment environment where “everything is going up” has disappeared with it. Investors will need to think far more about the risk profiles of their portfolios.

All of this points toward a good year for convertible bonds. When volatility rises, convertible bonds tend to outperform equities. Convertible bonds will also provide cheaper financing options to those companies with other types of debt coming due which will lead to greater primary issuance. This issuance will have higher coupons than the recent average, therefore benefitting equity investors with an income component greater than that of equities while the overall asset class continues to offer diversification to traditional fixed income investors.

Lara Shevchenko, senior policy advisor, market structure, FIA European Principal Traders Association (EPTA)

In 2024, we expect to see significant strides made towards opening up European fixed income markets to a more diverse range of liquidity providers offering the prospect of greater efficiency and lower costs for end-investors, due to more competition and the ability for more data driven trading decisions by the buy-side.

This past year has seen significant steps taken by policy makers to create a framework for enhanced fixed income transparency. The Mifir review has laid the path for the EU consolidated tape and empowered ESMA to make downward adjustments to fixed income deferral periods over time. In the UK, the FCA are prioritising the bond consolidated tape and will be rounding off the year with a policy statement setting out the proposed bond CT framework and also consulting on what we hope will be an ambitious new transparency regime for non-equity instruments.

These developments mean the industry will be well positioned to launch initiatives in the coming year, some of which already announced, which promise to reinvigorate European fixed income trading, bringing much needed impetus for growth. It will be more important than ever to support government bond liquidity in the current high interest rate environment and ongoing volatile markets. The bond consolidated tapes and revised transparency frameworks will do this by opening up fixed income markets to new competitors and innovation.

Jack Seibald, global co-head of prime brokerage services and outsourced trading, Marex

One of the more notable developments in financial markets over the past year is the shift into fixed income instruments. This is a direct result of the sharp rise in interest rates to levels not seen since before the financial crisis some 15 years ago, and the attraction of such returns to investors. We’ve even seen equity focused investors taking steps to access liquidity in bonds as an alternative.

We think that this trend is likely to be sustained or even accelerated in 2024. While a schism seems to have developed between the “higher for longer” and the “Fed easing” crowds as they consider the outlook for interest rates in 2024, it appears that the developing economic trends – weaker growth and some persistent inflation – have laid the groundwork for a sustained period in which fixed income will offer competitive returns and thus play a more prominent role in portfolios. The opportunities for investors in bonds ought to be particularly pronounced in the lesser credit-worthy parts of the market as sovereigns and corporates with substantial maturities find themselves having to refinance at materially higher rates.

Jo Burnham, risk and margining SME, OpenGamma

Institutional investor betting on yield spread fluctuations between US treasuries to make a fast buck have faced ballooning margin costs this year. The margin for one lot of two-year listed treasury futures surged from $330 in November 2020 to a staggering $1,265 as of 20 November 2023, reflecting an alarming 283% increase. Similarly, the margin for 10-year treasury futures witnessed a significant uptick, rising from $1,540 to $2,200 in the same time period, representing a significant 42% increase.

This is likely to compound a desire to hold cash in moving into 2024, which could affect the funding costs that face institutional investors looking to engage in the treasury basis trade, which involves taking positions in debt markets that seek to profit from changes in yield spreads between US treasuries and interest rate futures. Heading into the New Year, institutional investors face a more complex landscape as they navigate the trade-off between holding cash and using securities in a market characterised by higher interest rates. As the margin costs for treasury futures continue to rise, traders will likely seek new ways to adapt their approach to maintain profitability in an environment marked by shifting monetary policy dynamics.

The post The TRADE predictions series 2024: Fixed income, a look at central bank policy appeared first on The TRADE.

The move has opened up swathes of synergy opportunities for the pure fixed income asset manager, with its traders now working directly alongside RBC BlueBay Asset Management’s equities desk. For head of trading for the RBC BlueBay Asset Management London-based fixed income trading desk, Stuart Campbell, the institution’s combined size is a new strength. 

Left to right: Michael Silk, Anita Kaur, Mark Harrison, Deepe Raja, Jo Morris, Ben Thompson, Philip Steel, David Watling, Stuart Campbell, Daniel Grimstead

“Rather than us coming to a technology vendor as BlueBay plus RBC GAM, we can go in as one and that can maybe make your bargaining position a bit stronger,” he says. “In asset management, cost pressures are not going away. When you embed yourself into a bigger organisation, you can somewhat eliminate some of those cost pressures with synergies.”

Headed up by Campbell, the London-based fixed income trading desk consists of 11 traders and is split by developed and emerging markets. The desk has had extremely low turnover thus far, and many of the team have sat in their seats for well over a decade. 

Central to its specialism is the close-knit relationship between RBC BlueBay’s trading and investment teams. A bit like a multi-strategy house, BlueBay was once a hedge fund and long only shop and home to as many as eight investment teams with dedicated traders working on each one independently. Five years ago, the firm underwent a makeover, slimming down to one core investment process with one chief investment officer, Mark Dowding, and instating Campbell as head of trading.

However, the way traders’ roles are split up still mirrors that legacy structure with dedicated roles for credit, convertible bonds, FX, rates, repo, local and hard emerging markets. Within each team, traders have their specialisms but each one is able to cover for another and all are expected to contribute to the formulation of investment strategies as well as execution. 

“We ask that traders here are not simply executing – in that they’re integral to the investment decision making process and they are working side by side with the senior PMs that lead those strategies,” explains Campbell. 

While traders don’t have the authority to load up trades, outside of execution they are expected to collaborate with their portfolio managers to bring value add to the investment process by making suggestions around idea generation and execution. 

“You’re taught to almost think like a PM. They want trade generating ideas,” says Daniel Grimstead, developed markets credit trader, and 18-year BlueBay stalwart. 

The trading team work closely in tandem with portfolio managers when preparing a strategy. For convertible bonds trader Philip Steel, one of the most important things to assess is how to get out of a trade when discussing getting into a potential trade or strategy. While to the naked eye this attitude may seem defeatist, Steel – who has an impressive 16 years under his belt at BlueBay – says it is essential to breeding confidence in traders when executing. 

“That makes a big difference to how big a trade we get into,” he says. “The biggest thing that I ever learned when I first started trading, was that being right doesn’t breed confidence, it breeds complacency. Learning how to be wrong breeds confidence.”

A shifting landscape 

At the top of the tree, Campbell’s focus has become ever more centralised around regulatory and market structure change. In the process of being absorbed by RBC, the institution has transitioned from an Aifmd firm to a Mifid firm. It is now one of Campbell’s priorities to manage that transition. All the while, making sense of the plethora of regulatory changes proposed and actioned in EMEA and around the world over the last few years. The consolidated tape, the shift to T+1 settlement, the list goes on.

However, Campbell’s main focus continues to be minimising risk. This, he says, is done by encouraging more electronic trading volumes either through getting electronic VCONS coming back to traders or through full straight through processing (STP).

“I am trying to increase our percentage of electronic trading across the firm because it helps speed, efficiency, rebooking errors, and minimise errors,” he explains. 

One such area is the development of the firm’s chosen order management system (OMS), Charles River, and the continuous assessment of whether or not to implement an execution management system (EMS).

“With the advent of Mifid II and more data in the marketplace, the use of an EMS became more appealing for fixed income. A decision a lot of people in my seat would have to make is do you want to employ an EMS besides your OMS or can you get enough functionality out of your OMS to take advantage of new data aggregation, and smart order routing?” he adds. 

“One current project we are working on within the OMS is to create alerts from the Neptune Axe data. As something comes close to your target, it will alert the trader so they don’t have to sit there and go through one-hundred-line items every day checking where each level is.”

Developed markets

RBC BlueBay Asset Management’s fixed income developed markets business in London is split by its legacy roles with traders dedicated to investment grade credit and rates, FX and repo, and convertible bonds. While everyone has their specific role, collaboration is key on this team, particularly given the short window traders can have to execute in this news-driven market.

“It’s handy to hear their [PMs and analysts] conversations and understand a theme that they’re looking at. We can join in the conversation and from there we can do a bit of pre work for them before we get any order done,” says Michael Silk, whose trading role spans across IG credit, rates, FX and repo. Silk joined BlueBay 16 years ago in an operations role, moving into trading six years later. 

“The type of trades that we do are on the back of news headlines and movements in the market. We have to act quickly on them. It’s not building up over weeks and weeks. We may have the idea that we would like to do something if levels get to this particular target – and obviously anything can spike that movement so we just need to make sure that we’re there and ready.”

Relationships are essential to the developed markets business. For credit trading in particular, around 90% of trades are still conducted by voice as due to the size of orders, market impact becomes a real concern for traders when looking to execute. This makes some electronic and algorithmic methods of trading more of a market disruptor, the team explain.

“A lot of what’s quoted out there by algos is a disruptor in our market because everyone sees the best price that they want to buy and sell bonds at but everyone wants to trade at those prices all the time. That’s not really how the market is trading,” explains Grimstead.

Grimstead joined BlueBay 18 years ago and covers anything to do with European credit, which typically consists of larger blocks, as well as rates and AT1 products. 

“Everyone wants it [credit] to trade like in an equity world where you want to buy Microsoft and there is only one Microsoft stock to buy. If you want to buy Microsoft bonds, you’ve got a different currency, maturity. You’ve got so many different opportunities to do things. It just can’t work in that way. From an institutional standpoint, if I want to trade 100 million, that’s not being done electronically,” he says.

“Pretty much every run you see in the US works. The thing in Europe is there’s a lot of runs that go out there that are just a little bit meaningless at times. There’s no intention of it being misleading, but if you ask five out of ten guys, probably five of those ten won’t stand up to anything they send out. Information leakage is key. I don’t want to go out there on a whim and ask someone because they might just pass and say I don’t want to trade that, because then they’ve got all my information.”

Also falling under the team’s developed markets umbrella is the convertible bonds book of business. This is another instrument that relies heavily on relationships, despite orders usually coming to market in smaller size than credit. Convertible bonds are a hybrid of bonds and equities. After buying the bond, its new owner has the option to convert that into equity in that company in the future should they wish to do so. It’s a cheaper way for companies to raise money because they don’t have to pay as much coupon because they’re potentially having to give away equity at the end of that bond’s life.

“In reality, that [conversion] doesn’t really happen because we’re not in it to own part of the company,” confirms Steel. “We’re in it to get the uplift of an equity rally. The convertible bond will participate in that whilst also protecting against an equity crash because it has a fixed income portion as well.”

Future synergies

As a hybrid product that bridges equities and bonds, it is likely an area where the desk could see more synergies following its absorption by RBC. Now sitting on the same trading floor as the equities desk, the two teams are able to collaborate more on cross-product client strategies. Convertibles typically trade in smaller size in comparison with credit but this makes relationships equally as important, says Steel.

“I would rather rely on my relationships and my own maths to make sure that we’re getting the right execution. Talking to someone, I can get a better execution than putting it on a blank screen. But on those days, where I’m incredibly busy, those electronic trades really come in handy because if I’ve got 180 trades to do, realistically, doing them all manually, I could probably give my all to 50-60 of them,” he says. 

“Prices on runs generally work in about two million a side. I know that if I’ve got a 30 million trade to do, I can work out the best price without having to ask anyone and then ask one of my best relationships to get me that price in the size. The trust is a big thing because problems occur if they come back and say they can’t do it. Then I either have to let them work on it or open up to someone else what I am doing and that isn’t something I want to do. Letting them work on it might mean we do 10 million and then I have to pay more for the next 10 million and then more again for the final 10 million.”

Newest to the developed markets trading team at RBC BlueBay Asset Management is Anita Kaur who covers investment grade credit, FX, rates and repo alongside Silk and Grimstead. Kaur joined the firm seven years ago, moving onto the trading desk four years later. As a jack of all trades, she covers most developed markets products. For her, it is the ability to consume information and communicate effectively that makes a successful trader.

“It might look like as though you’re sat there trading and negotiating prices all day, but in actual fact there’s quite a lot of price discovery that happens beforehand that you need to be able to relay back to PMs and senior traders,” she explains.

“Even if you’re not trading and you don’t have something active to do – the data that’s coming to you is going to heavily influence how your day goes and whether a PM wants to make an active investment. It’s having a general awareness of what people are interested in and relaying information back to risk takers. You need to have an eye on all markets and what information, or news might be coming out and who it’s relevant for and making sure that your PM sees that information as soon as possible.”

Emerging markets 

The desk’s emerging markets business is split up by local and hard currencies. Fixed income is naturally a different beast to equities when it comes to liquidity, but dive deeper still and you’ll find some of the most nuanced liquidity landscapes can be found in the emerging markets across both local and hard currencies. 

“Liquidity always plays a bit more of a role in the EM Local markets,” says emerging markets trader, David Watling who covers emerging markets local FX, rates and bonds and has been with BlueBay for almost two decades. “There are also the technicalities of trading the different currencies and the settlement issues surrounding those. DM is quite straightforward in and out, lots of liquidity.”

For Deepe Raja, hard currency sovereign and corporate debt emerging markets trader set to celebrate his tenth year at BlueBay later this year, it’s the range of country-specific macroeconomic factors that influence liquidity in the emerging markets which make them so interesting to trade. Hard currency traders execute emerging market sovereign and corporate debt, denominated in a non-local currency.

“Emerging markets sentiment is largely driven by the broader macro risk tone across rates, equities and commodities, in conjunction with idiosyncratic stories, geopolitics and economic data releases that are EM country specific,” he says. “It’s more all-encompassing trading emerging markets than it is another asset class.”

Core relationships 

It is because of the emerging markets liquidity landscape that relationships are essential. Broadly speaking, emerging markets as an asset class is less liquid than developed markets, and within that credit even more so.

“Trading emerging markets credit for the sell-side is more capital intensive and requires more balance sheet usage. In an environment where bank cost of funding is increasing with rising rates they are more selective in terms of how the balance sheet is deployed. If you have an established relationship with a bank trading desk they will naturally be more inclined to deploy balance sheet to facilitate your trades,” explains Raja.

“There may be instances where an electronic trading platform is used for efficiency, namely programme type inflow/outflow trades. Occasionally, we also use an RFQ trading venue for say $3 million to $5 million notional size of a liquid credit if our direction is contrary to risk sentiment on a given day, for instance buying into weakness or selling into strength which can often result in attractive trade entry or exit levels.”

Working in tandem with Raja in this area of the business is 21-year and 16-year BlueBay longstays Jo Morris and Mark Harrison. Harrison has been in the industry for almost 43 years, seeing the markets through some major shifts and events. My word is my bond, he says, stressing the need for a handful of core counterparties that can be relied upon come rain or shine. 

“There are five or six banks that I have a global partnership with and have the backing/support of their global heads of sales and trading. This close relationship helps when we have very large rebalancing trades to do. They will price the block size for me sometimes even in credits they would not normally trade,” he says.

“Emerging markets trading can be more challenging than developed markets due to the overall size of the markets. When executing larger orders, you need to work in with the sell-side and be 100% transparent with this approach. It’s when you speak to the wrong people that the information flow can get into the market and prices change drastically.”

However, in light of the importance of relationships in the emerging markets credit space, turnover on the sell-side in their emerging markets trading teams – especially in the US – has become something that acts as a hindrance to liquidity access, Harrison explains. 

“It is really hard for the big banks to build and maintain a global franchise with this turnover of traders,” he says. “Banks are always looking to win market share and employ the best people, so if needs be they will pay up for the right person and that can cause a kneejerk reaction and a merry go round of trader moves.”

Local nuances

For emerging markets trading, the devil is in the detail with how a trader approaches executing on behalf of their portfolio manager. Different jurisdictions have different levels of volatility, different approaches to market structure – whether that be relating to front middle- or back-office – as well as varying levels of electronification across their markets.

“If banks are trying to specialise in particular countries or regions, you’ve got to be on board with them. You can’t ignore them even though some of our tier one banks are present in those markets,” says Ben Thompson, emerging markets local currency trader who has been with BlueBay for a decade. 

RBC BlueBay now uses FXall and MarketAxess in its emerging markets businesses, however, when Thompson began trading emerging markets, the electronic platforms offerings were limited, in particular for bonds or FX.

“I’m very limited on the size of flow which I’ll put down the platforms, particularly in the less liquid market,” he adds. “It is mainly used for smaller inflows, outflows, market adjustment trades, anything large or sensitive would always go by voice with some of the more trusted banks that we use.”

The nuances of local emerging markets liquidity come from the local funding of bonds and the restrictiveness of currencies, fellow emerging markets local currency trader Watling adds. “You have to fund some currencies through the custodian, so you have to understand the settlement process as well as speak to people onshore. Not only are we talking to people in New York and London, but we’re also speaking to people in Mexico and Brazil and some of the local brokers out of Lima and places like that.

“It’s the old school conversations as well with some of the instruments, especially the local corporates where you’re going out and talking to the trader asking what they’re seeing, what other counterparties are seeing and doing and then trying to get a picture from a few people of what’s actually going on in the market and where the real price of the instrument is.”

A lot of the time the liquidity landscape means emerging markets traders aren’t usually too hasty to execute, ever mindful of the potential impact on the market they may have. The price will likely move but then come back.

“It’s not necessarily taking a price, often we’re out there just working a price instead, so showing them our interest and getting them to approach local participants and work orders for us that way,” says Watling.

In light of this more cautious approach to execution, reliable data is essential to know how and where to price. However, there lacks a consolidated source for some of the more illiquid local markets. Traders must instead piece together the picture using any information they can get their hands on alongside typical sources like axes. 

“There tends to be three prices in every trade – where the PM thinks it is, where I think it is and where the bank thinks it is. It’s very rare those are in line. This can change again depending on the size of the trade,” says Thompson.

“We try not to pay up too much for the liquidity but still remain mindful about how we may impact the market with our trading. Where possible we tend to take a slower, more gradual approach into trades rather than just go all in. Over time we’ve learned – particularly in some of the more liquid and volatile EM products – you do get a more than one opportunity. More often than not that a price will move but then it will come back.”

Cross collaboration 

Formerly boutique and now part of a global bank, the London fixed income desk at RBC BlueBay Asset Management has an opportunity to play a completely different role for its clients, something few trading teams have the chance to do in their lifetimes without moving firms. While there are opportunities for both the developed and emerging markets teams to further work together on larger strategies across funds, there are also ways that the desk’s new role as the fixed income arm of RBC BlueBay will allow it to cross-collaborate.

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RBC BlueBay Asset Management’s investment-grade credit trader, Christopher Lemmo, has left the firm to join Norges Bank Investment Management after almost 13 years at the fixed income focused asset manager. He has been appointed senior trader at Norges Bank Investment Management, based in New York. Lemmo joined RBC as an investment-grade credit trader in 2010 after previously spending nearly four and a half years at Vanguard in its analyst development programme and later as an investment-grade credit trader. Joining the US-based RBC BlueBay desk following Lemmo’s departure is Ben Romeo, who has been appointed senior trader after most recently serving at AXA Investment Managers for a decade.

Aviva’s global asset management business has appointed Jill Barber as global head of distribution, who is expected to join the firm later this year subject to regulatory approval. Barber will join Aviva Investors from GAM Investments, where she has served as global head of institutional solutions since November 2020. She brings 25 years’ experience in investment management to the firm, having held senior positions at Jupiter Asset Management, Franklin Templeton Investments, Hermes Fund Management and Fidelity International. Barber will succeed Louisa Kay, who is set to retire at the end of this year following three decades in the investment industry. Kay will continue to lead the distribution function until Barber joins the firm. 

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Christopher Lemmo left BlueBay, part of RBC Global Asset Management, in April this year after almost 13 years at the fixed income focused asset manager.

He has been appointed senior trader at Norges Bank Investment Management, based in New York.

Norges Bank Investment Management confirmed his appointment.

Lemmo joined RBC as an investment-grade credit trader in 2010 after previously spending nearly four and a half years at Vanguard in its analyst development programme and later as an investment-grade credit trader.

Joining the US-based RBC BlueBay desk as Lemmo departs is Ben Romeo who has been appointed senior trader after most recently serving at AXA Investment Managers for a decade.

RBC BlueBay confirmed Lemmo’s departure and Romeo’s appointment.

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