The next five years will deliver an economic environment that will alter the dynamics of equity, bond and foreign exchange in several ways. Equities will struggle to repeat their stellar performance of the past few years. In absolute terms, stocks in the MSCI World Index will generate a reasonable return of some 7% per year in local currency terms over the next five years.

But relative to corporate bonds, our calculations show they will deliver an excess of return of just 1% per year versus around 10% over the past five years – and this for roughly two times the risk. This means fixed income will offer a more favourable risk-adjusted return than stocks. Investors should, then, allocate more to fixed income and especially corporate bonds. We think the dispersion of returns across regional and national equity market will fall. Equity investors, therefore, may find it more rewarding to invest along sectoral or thematic lines. The foreign exchange market will be defined by a steady but persistent depreciation of the US dollar. On a trade-weighted basis, we expect a decline of some 2% per year through to 2029. Assets that are negatively correlated to the dollar should account for a larger share of portfolios. 

What are the key macro themes that impact the strategies you are recommending to investors?

The global economy rests on less robust foundations compared with the days when interest rates and inflation were both heading lower and international trade was booming. Productivity is unlikely to rise much over the remainder of this decade as globalisation stalls and businesses struggle with the growing costs of the net zero transition and labour shortages. Consequently, we expect only modest GDP growth of just 2.6% at a global level in real terms over the next five years, just below its long-term average.

Making matters potentially more complicated for investors is the likelihood that moderate growth won’t translate into moderate inflationary pressures. We think inflation should also prove a stubborn foe; while it will eventually settle within central bank target ranges by the end of this decade, it will be more volatile than policymakers would like.

What key factors do you look at when creating your strategies?

Macroeconomic forces have a bigger influence on asset class returns over the medium and long term than any other factor; understanding how the economic landscape changes over time is both a fundamental component of strategic asset allocation and crucial for investment success over the long run. Over the short run, markets are more volatile than is warranted by underlying economic conditions. Moreover, the relationship between asset classes is not stable through time.

This leads to a mispricing of assets, which presents opportunities for tactical asset allocation. Every asset class carries a risk premium, which rises and falls as the business cycle progresses from one phase to another. The focus of our research is to identify how the macroeconomic environment is changing and how this is likely to affect the risk premium attached to each asset class. The skilled deployment of both strategic and tactical asset allocation can deliver superior investment returns over the long term.

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Robert Whelan has joined Citadel as equity trader following almost eight years at Pictet Asset Management.

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Will Irwin was appointed director of FX institutional sales at Lloyds Bank North America, following his departure from Banco Bilbao Vizcaya Argentaria (BBVA) where he had been serving in a similar role. Prior roles include four years as director of G10 and emerging markets FX at Dankse Bank, as well as director and FX trader at Societe Generale. Elsewhere, Irwin spent almost six years at Nordic universal bank Nordea, most recently serving as senior dealer – foreign exchange sales and trading.

Pictet Asset Management appointed Jade Beckmann as an equity trader. Beckmann joined Pictet Asset Management from Bloomberg, where she most recently served as a professional services sales account manager. Prior to that, she held the role of financial products equity specialist at the firm. Before joining Bloomberg, Beckmann spent eight months at PwC as a technology consulting analyst. Elsewhere in her career, Beckmann held internships at Fonterra, Bloomberg and PwC.

Perpetual Group merged its existing regional asset management businesses to form one global division led by a newly created role of chief executive of asset management. Rob Adams will take on the dual role of chief executive of Perpetual Group and chief executive, asset management. Graham Kitchen, who currently serves as chairman of Trillium and Perpetual corporate entities in the UK, will serve as global head of investment strategy while a search for a permanent candidate commences. Elsewhere, Clare Forster has been appointed as global head of business management and strategic delivery.

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Beckmann joins Pictet Asset Management from Bloomberg, where she most recently served as a professional services sales account manager.

Prior to that, she held the role of financial products equity specialist at the firm.

Before joining Bloomberg, Beckmann spent eight months at PwC as a technology consulting analyst.

Elsewhere in her career, Beckmann held internships at Fonterra, Bloomberg and PwC.

Beckmann announced her appointment in a social media post.

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Plato Partnership stated that the new founding members’ participation marks a milestone in the company’s mission to bring greater efficiency and innovation to all areas of the European equity marketplace.

“The work done by Plato Partnership is a cornerstone of improving the marketplace. We are committed to sustainable outcomes with the aim of driving long-term performance and positive impact beyond returns,” said Lynn Challenger, global head of trading and order generation and managing director at UBS Asset Management.

“Our values align closely with that of Plato, and we are delighted to be a part of the Partnership as we pursue our shared goal of securing the future of financial markets.”

Challenger was recently added to Plato’s board of directors, bringing over 25 years’ experience in capital markets, multi-asset trading, technology, best execution and investment operations. His appointment followed that of Salvador Rodriguez, who was named sell-side chair earlier this year.

“Since our inception, Kepler Cheuvreux has been built on research and partnerships as its foundations,” said Chris McConville, global head of execution services and trading at Kepler.

“Plato Partnership’s commitment to a strong academic base while fostering open communication and dialogue between all parts of the marketplace are vital for the health of all financial services, and we are excited to start contributing to this mission.”

The three new founding members will participate in setting Plato’s agenda to provide solutions and efficiencies to today’s equity marketplace in an attempt to improve market structure for the benefit of all market participants.

“Pictet Asset Management have a robust and progressive approach to providing best execution on behalf of our clients,” said Edward Atkins, global head of equities trading at Pictet Asset Management.

“Plato Partnership provides an opportunity to collaborate with our peers and contribute to making the marketplace better for all participants.”

 Speaking on the addition of the new founding members, Plato’s chief executive, Mike Bellaro, added: “We are delighted to welcome these three leading financial institutions into the Plato fold. Their experience and expertise in the European equities marketplace will prove invaluable as we seek to broaden the scope and scale of the partnership.

“We face a tough time in all financial markets, and only through better communication between buy-side, sell-side and venues coupled with strong academic research can we find the best solutions to the challenges we face.”

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During a panel discussing the value of Execution Management Systems (EMS) and how they have evolved to meet client demands, panellists shared varying opinions on how they perceive the worth of these platforms to be.

Alex Harris, chief product officer at AxeTrading noted that a lot of buy-side participants do not feel as though they need an EMS, especially if they already have an Order Management System (OMS). “What we’re saying is we understand why you’re in that situation, but realistically the specialty of having an EMS is actually quite critical to your business in the sense that you need to want to stay on top of things.

“We provide that out-of-the-box connectivity and aggregation, which then allows you to keep on top of the market, while also giving you the flexibility to then extend that reach of where you want to execute as well. Because we do the connectivity for you, we put it all in place, we give you that ability to then go out into the market and execute. By having that specialty provider, we take a lot of that off your hands and it enables you to do what you do best, essentially.”

Michael Chin, chief executive of Broadway Technology, made it clear that he loves what an EMS can do, however, wasn’t shy to admit that he believes EMS are not necessarily adding a lot of value in the fixed income space. “The ideal would be that it aggregates, helps to normalise all the connectivity, all the different venues, the nuances of them – but I think we still have a long way to go for that to really take place,” said Chin.

“I think EMS are very valuable, but specifically in the fixed income space, I think the challenges around the vast amounts of data, hundreds of thousands of bond prices and calculations – today I don’t think there is the right connectivity solution that has come to market. There are few out there, but I think the value add for connectivity is to enrich the flow, analyse and abstract the nuances of the different types of workflows and help normalise so that there is more of a single sort of holistic view of liquidity.”

Tomas Zikas, global product manager, fixed income at Bloomberg, noted that the function of an EMS can be categorised into four pillars of core competency. Ultimately, EMS need robust and dynamic integration with the OMS; good information discovery and price transparency; access to liquidity sources and liquidity destinations. In addition, Zikas suggested that an EMS needs to be an X Factor as well. “Essentially, how do you provide an overlay that helps the trader be more effective in their jobs?

“When you put that all together and then you say you need to do all those four competencies on government bonds, corporate bonds, mortgages, money markets, loans, interest rates, etc, it becomes quite a big task. So the OEMS concept is critical because they need to be handshaking really well, but you really want an EMS application that’s really focused on that primary objective which is empowering the trader to focus on the biggest value activities that they need to achieve.”

Providing an opposing view on the value of EMS, Karim Awenat, head of fixed income trading, London at Invesco, said: “I don’t really see the huge benefit of sticking another person in the middle to assist with aggregating data.

“I can already aggregate it and all you’re doing is installing something on my computer to slow it down. If something is a decent sized trade and someone wants to show me liquidity, great. And if they don’t want to show me liquidity, they don’t want to trade with me. So at that point, I will use my relationships.”

Awenat also brought into discussion the debate about whether traders should also operate as coders, highlighting that without actual relationships, traders could face troubles. “Ultimately, if you are heavily into your Python programming, when the whole market breaks down and you need to trade with someone, you need to leverage your personal relationships,” said Awenat.

“You need to be able to phone up traditional market makers and say, listen, I know you don’t want to buy these bonds but I need to sell them and you need to make me a price. If you’ve abused that relationship for years because you’re trading purely electronically, they’re going to think, why should I want to extend my balance sheet to help this person out. That’s where I think that personal relationships are more important in finding liquidity because actually, in my experience the trading platforms have done a good enough job for me.” 

In response to this, Harris, did mention that “the EMS is there to help the trader to focus on that relationship building by having something in place which allows you to take away the need for you to uphold, put in place code, etc on your own side.

“I think putting an electronic solution in between that can help with the compliance issues as well -showing method execution, showing that you’re targeting multiple places of liquidity when times are good, but also freeing up traders to build those relationships when times are bad.”

Elsewhere, Carl James, global head of fixed income trading at Pictet Asset Management, mentioned that EMS still have to evolve further to truly become valuable in the fixed income market. “Sometimes people confuse what’s gone on in the equity markets and then try to transplant that into the fixed income market, which doesn’t work,” he added.

“The bit I like is best execution analysis and that talks about the process of how you get to that final price – that’s what an EMS should do but I don’t think an EMS is ready for it yet.”

Looking at where EMS need to evolve to cater better to fixed income markets, Chin noted that “when you think about what happened in equities with all the algos and strategies that were being sent out and distributed to the buy-side, having a single view of that in one single tool became very valuable.

“My take on this is dealers and banks have to mature more to building out these direct bilateral trading connections to the buy-side.”

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– Carl James, head of fixed income trading at Pictet Asset Management

In 2022, we expect to see more asset classes evolve into digitised forms, which will create opportunities for firms like DTCC to support market transformation by creating the infrastructure to enable their safe and efficient processing. Market infrastructures are best placed to mitigate the operational and counterparty risks related to digital assets by establishing governance models and standardised post-trade processes, which will be critical to developing deep, liquid and efficient markets and promoting greater investor and regulatory confidence.

– Michael C. Bodson, president and chief executive officer, DTCC

 As more users and markets embrace Web 3.0 thinking, digital assets will merge with traditional forms of finance to redefine value chains and financial markets. Money and value will be unlocked, made more useful, and will move more efficiently. Issuers already see the benefits of a distributed architecture and decentralised protocols for raising capital.  Next up will be an overwhelming demand for institutional grade and regulatory-compliant infrastructure and tools to engage with this new market for value. The regulatory landscape will become clearer and will pave the way for further innovation, as we saw from the recent report by the BIS into the decentralised finance (DeFi) space. The opportunities for DeFi in pre-trade and post trade will create an explosion of new use cases, much more reflective to demand and investment beyond crypto.

As centralised crypto-intermediaries (CeFi) and decentralised finance projects (DeFi) proliferate, these venues will gravitate toward governance structures and compliance programs long used by traditional financial markets as regulators determine how to regulate these markets.  For example, in 2020, the Financial Conduct Authority (FCA) required crypto asset firms to comply with anti-money laundering (AML) regulations through registration, which has fast become a global trend. In the US, there are similar concerns about the status of individual crypto products and how market participants can offer them to the market.

Further, SEC Chair Gary Gensler raised concerns about information barriers between investors and those funding innovative DeFi projects. The latter will drive the need for DeFi to eventually exist within a regulatory framework. All parties involved are engaged in spirited discussions about whether existing frameworks suffice, or whether regulators should consider new, fit-for-purpose frameworks. We increasingly see venues and market participants employing more mature compliance programs and surveillance techniques to stay ahead of regulatory requirements. Particularly for know your client (KYC), AML, transaction monitoring and trade surveillance, we expect that both CeFi and DeFi market participants will adopt best-of-breed compliance tools in a manner that brings the lessons of traditional control frameworks into the future.

– David Griffiths, director of regulatory affairs at Eventus

Digital asset interoperability and time to market remain a challenge, with traditional and multiple types of blockchain-enabled digital asset infrastructure being severely fragmented. We will increasingly see the introduction of solutions and services that bridge the gap between traditional and digital capital markets, whilst effectively mapping to evolving regulatory frameworks to enable mass adoption by institutional players. To address this, centralised finance (CeFi) and decentralised finance (DeFi) will intersect within a regulated environment and support the convergence of traditional and digital asset activity.

Centralised and decentralised technology enabled businesses will cohesively coexist by way of hybrid solutions, both traditional and digital, as buy-side institutions, banks, brokers, exchanges and other capital players increasingly adopt digital assets as part of their digital transformation agenda. To support this, financial market infrastructure and digital asset infrastructure will become interoperable. One such example will be the centralized exchange and decentralized exchange combining, so that we increasingly see a type of hybrid exchange. And the evolution of the hybrid digital market infrastructure delivering Hybrid Finance – HyFi!

– Hirander Misra, CEO, GMEX Group

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Vontobel Asset Management has selected a former long-standing multi-asset trading head from Pictet Asset Management to lead its fixed income trading.

Jean-Michel Manry joins the CHF 120 billion Swiss active asset manager in Zurich as head of fixed income trading from single-family office, Rama Capital, where he has spent the last two years as an operational advisor.

An update on Manry’s LinkedIn profile confirmed that he began his new trading role at Vontobel this month. The TRADE has reached out to Vontobel for comment.

Prior to joining Rama, Manry spent 18 years at Vontobel rival, Pictet Asset Management, which he first joined in 2000 as a derivatives trader and before taking on more senior roles as head of fixed income and multi-asset trading. 

At Pictet, he traded equities, rates, bonds, FX, OTC products, and was responsible for building out the buy-side execution desk in Geneva.

Manry’s appointment follows news last month that Vontobel had made plans to outsource its trading operations to State Street’s front-to-back outsourcing platform. 

Through a multi-year service agreement, the pair confirmed that Vontobel will use State Street Alpha for front-office technology, investment operations services, Alpha data services, and liquidity risk solutions.

“We are happy to be partnering with State Street to further enhance the investment servicing platform for our investment boutiques,” said Felix Lenhard, COO and member of the executive board at Vontobel.

“With this solution Vontobel will benefit from access to a robust, high quality and scalable operating model that will provide best in class services to our portfolio managers and supporting functions. We will also be able to improve servicing and onboarding of our clients as a result of expanded connectivity with custodians and brokers.”

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One of the biggest question marks for Aquis Exchange is whether pan-European share trading will revert to its pre-MiFID I pattern, as looks likely now, or if the actual domiciles of the shareholders of the companies that are listed across Europe will end up being the decisive factor in where trading is ultimately conducted. As we have a UK and a French MTF, Aquis is covered in either scenario but a bifurcation of liquidity is not in the best interests of the end investor.

Also, speaking as the CEO of an IPO market for growth stocks – Aquis Stock Exchange – I am also concerned about the persistent rumours in the UK that the Government is planning on increasing Capital Gains Tax. Such a move will have a very detrimental effort on entrepreneurship and is a massive disincentive for investors in UK PLC – just at the very moment the economy needs small and medium sized businesses to flourish the most.
– Alasdair Haynes, CEO, Aquis Exchange PLC

Markets this year have adapted and developed even greater resilience and the expectation is that markets will continue to evolve, develop and improve. These changes will be driven by regulatory amendments, technological enhancements and greater efficiencies by venues and market participants alike. 

Data and automation opportunities will continue to be critical in both pre trade decision making and the validation of decisions for traders. The continued efforts of firms around diversity and inclusion strategies and engagement will result in the markets being in a far stronger position moving forward and will be additive to future market innovations.
– Simon Steward, head of European equity trading, Capital Group

Acquisition and consolidation of market operators will continue in 2021 as exchanges look to diversify into new products and technology. Cryptocurrencies will extend their popularity as an alternative investment and we anticipate continued significant growth in SIX crypto ETP listings and trading.

Competition in Swiss equity trading will likely return, which SIX welcomes. We anticipate the Swiss Stock Exchange will continue to have the tightest average spreads though these may initially weaken as liquidity providers recalibrate for fragmented markets. The fragmentation of liquidity will likely alter order book dynamics with increased order to trade ratios, orderbook “noise” and greater instances of ghost liquidity. 
– Tony Shaw, executive director, London office, SIX Swiss Exchange

How 2021 will look will depend largely on whether the industry continues with or moves on from the significant developments we saw in 2020: Is there a sustainable new retail interest in the markets, or was the ‘Robinhood Rally’ just the ‘Draft Kings’ gambler looking for an outlet with no sports to bet on during the lockdown?

Three significant new exchanges launched this year; will this lead to more fragmentation, or is this innovation that solves market problems? In block trading (our neck of the woods), independent venues have been acquired by broker-dealers and exchanges. As the lone independent left, we’ll be watching how the buy-side works together with a new regime coming to Washington.
– Jonathan Clark, CEO, Luminex Trading & Analytics

At Amundi Intermédiation, we believe that 2021 will definitely position the outsourced trading as a high potential market in the investment management industry. The disruption emphasised by the recent COVID-19 pandemic are in fact leading many investment managers to re-think their operational models, with particular reference to the internal dealing function.

The impact of rising technology costs, the increased challenge of finding liquidity and the required operational scalability has renewed asset managers’ interest in delegating this function to third parties and accelerated the trend. The benefits of this operational model are now appealing to a much broader range of clients in terms of size and geographical diversification.
– Gianluca Minieri, deputy global head of trading, Amundi Intermédiation

The last few years have taught us to expect the unexpected, but we are hopeful 2021 will begin with a resolution on the UK and EU’s future relationship, providing much needed clarity to the industry. Having been prepared for all Brexit scenarios for some time, our focus will be on ensuring a smooth and orderly transition to the post-Brexit world and, while it may take time for activity to stabilise, we expect to see investors and volume return to Europe’s equity markets with the political uncertainty removed.

We are also hopeful that 2021 will see positive developments on the regulatory front. This includes concrete steps being taken towards the development of a consolidated tape and a sensible approach formulated for the MiFID II review, which keeps alive the principles of venue competition and choice to the benefit of end investors.
– Dave Howson, president, Cboe Europe

The NDF market has been in growth mode for several years, and we expect this trend to continue, if not accelerate in 2021. The maturation of this market can be seen not only in the growth of traded volumes, but also in the increase in pre- and post-trade channels.

Electronification of NDFs has increased, along with the number of venues and trading formats (CLOB, bespoke liquidity on ECNs, etc.). Central clearing of NDFs continues to grow, and that will accelerate with the adoption of Uncleared Margin Rules. And this is before we factor in the boost from macroeconomic conditions.
– Kevin Wolf, CEO, Euronext FX

The impact of COVID-19 triggered record days of trading activity in 2020 across London Stock Exchange Group markets. Dark block trading became truly mainstream in the search for quality liquidity with Turquoise Plato seeing record activity in November and I expect this to continue as the importance of data and the ability to real-time measure performance continues to grow in 2021.

Looking forward, sophisticated interrogation of big data and understanding of the inherent value will be a fundamental theme, especially in a post-Brexit environment where routing behaviour will need to evaluate new venues and re-calibrate quickly. Data science will drive this routing behaviour and product development. Depending on the outcome of ongoing Brexit negotiations, traders may need to navigate fragmentation of liquidity across Europe and the risk of regulatory divergence.
– Scott Bradley, head of sales and global business development, LSE cash secondary markets and Turquoise, London Stock Exchange Group

Post-COVID (around mid-2021), the adoption of technology forced upon us by trading remotely and working from home will take a breather. Humans are creatures of habit, and in the post-pandemic, I believe they will fall back into the ‘old ways’ of doing things quite quickly. The technology is here and readily available and it will be adopted, but at a far-slower pace than perhaps people think.

Elsewhere in 2021, the buy-side will continue to increase their use of electronic trading methods, with suppliers offering more and more sophisticated means to do so. Smart request for quotes (RFQ), synthetic central limit order books, dark pools, program (list) trading will also increase.

Best execution analysis will be used to better assess and evidence best execution within fixed income, while equity-style transaction cost analysis (TCA) will be discarded as being not fit for purpose… finally. Finally, automated trading will become an even bigger trend as the underlying technology and decision engines get smarter, and the buy-side is increasingly comfortable with the concept.
– Carl James, global head of fixed income trading, Pictet Asset Management

If 2020 has taught anything, it’s to expect the unexpected. This will continue to apply as we head towards 2021. Technologically advanced firms have emerged as leaders in the shift to working from home, and, as we’ve all settled into a hybrid working environment with an increased proportion of time spent working remotely, I expect technology to continue to act as a key differentiator in 2021.

Buy-side firms that have invested in smart tools, using AI and machine learning to access research and process data, may be best positioned to make more informed trading decisions, potentially leading to enhanced performance. This proved critical at a time when high volatility resulted in a dramatic increase in the cost of trading earlier this year.
– Mark Pumfrey, global head of equities, Liquidnet

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Geneva-based Pictet Group has opened a new office in Shanghai for its asset management business to expand its presence in China, in what it describes as a milestone for the buy-side house.

 Pictet Asset Management has applied with the asset management association of China and the Shanghai wholly foreign-owned enterprise to raise funds from domestic mainland investors in offshore strategies under the qualified domestic limited partners programme.  

The firm said an onshore presence in China would complement its overall China strategy, which focuses on schemes such as the renminbi qualified foreign institutional investor programme, Shanghai-Hong Kong stock connect, bond connect, and China interbank bond market direct access. 

Pictet Asset Management has also been co-operating with onshore global banks under the qualified domestic institutional investor scheme.  

“The expansion into China represents a significant milestone in the 215-year history of Pictet,” said Renaud de Planta, senior partner at Pictet Group. “We are encouraged by the prospect of the country’s asset management industry, which has developed into one of the world’s biggest and fastest growing, thanks to China’s economic strength and its rate of capital accumulation.

“The global macro environment is not without challenges but given the Group’s financial strength and our long-term commitment to the China market, we remain confident that now is the time for us to take this important step.” 

In September, UK investment manager Baillie Gifford made a similar move to expand into China with a new office in Shanghai following its approval to operate as a private securities manager. 

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