Matthew McCormick, a portfolio manager with Bahl & Gaynor Investment Counsel Inc., Cincinnati, said while he has reviewed some of the electronic trading tools available, he relies on the expertise of traders to execute transactions. He believes the current regulatory environment most likely is keeping some portfolio managers from embracing trading technology.
"In this age of compliance, these tools will be a little slow to catch on because many institutional investors want to be sure there are clear lines of demarcation of responsibilities for accountability purposes," he said. "You have to be able to follow a stock from the idea to portfolio implementation with many checks and balances along the way. "
Some firms that provide electronic trading technology to investment firms include:
• UNX, an institutional equities trading firm providing electronic trading platforms that allow institutions to view and access market liquidity at different market centers, order handling and routing systems for best execution and order management system integration and trade execution measurement;
• FlexTrade Systems, which, through its FlexTrader product, provides institutional investors with direct access to major market centers as well as trading strategies and order management; and
• BNY Brokerage Inc., New York, which launched a suite of direct-execution services called DEx in July that provides institutions with direct market access trading capabilities that include standard and custom trading algorithms.
One portfolio manager who asked not to be named said he has so many firms — both technology companies and brokerages — trying to sell him their latest electronic trading system that he has a hard time keeping them straight.
Ted Oberhaus, director of equity trading at Lord, Abbett & Co. LLC, Jersey City, N.J., said the wide variety of trading tools on the market — and their complexity — is one big reason portfolio managers have not been more involved in the trading process.
"Every portfolio manager is a wanna-be trader," he said. "But having a specialized group of traders is important because of the complexity of the tools. It takes a staff of senior traders to make these algorithms hum. It's not like punching a key."
He added that at a firm like Lord, Abbett, which manages more than $80 billion worldwide, "you would not want the portfolio managers dealing with day-to-day transactions. They're better focused on fundamentals." He agreed, however, that at smaller funds, particularly hedge funds, where the drive to keep costs low is never ending, portfolio managers are more likely to handle the trading as well.