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Funds Differ on Merging Trading Desks

Liberty Funds Group of Boston stood out from the crowd recently when it merged the equity trading desks of its two mutual fund companies, Stein Roe Mutual Funds of Chicago and Colonial Management Associates of Boston. Merging equity trading desks is a move that relatively few holding companies with a number of fund affiliates have made.

Scudder Kemper Investments of New York combined two equity trading desks when Scudder merged with Kemper in December 1997, said Steven Shapiro, a firm spokesperson. The centralized desk is located in New York. The firm decided to merge the desks for simplicity, he said.

Other fund holding companies said they do not combine the equity trading desks of their affiliates because they want to keep the fund companies independent in every regard.

"Our system is based on the investment and operating autonomy of our firms," said John Hubbard, spokesperson for UAM Asset Management of Boston, which has numerous mutual fund companies as affiliates. "If any of our firms wanted to combine the trading desks, that would be up to them, but we would not initiate that."

Nvest Companies L.P. of Boston, which has 12 affiliates, does not combine equity trading for any of them.

"Our affiliates think it's important to their investment processes to have their own trading desks and we concur," said Larry Dwyer, a spokesperson for Nvest.

Saving money was not the main motivation for Liberty Funds Group merging the desks, said Loren Hansen, director of equity investment for the firm.

"In fact, there should be some start-up costs associated with doing this but we should be able to handle much greater volume and handle trades more efficiently going forward," Hansen said.

The main reason for the merger was to take advantage of the fact that a unified trading desk under Liberty Funds Group would command more clout than the two individual fund families themselves, Hansen said.

"The larger amount of volume you do, in this case, with brokerage firms, they obviously are more interested in being more competitive to do your business, and hopefully will provide more services and better prices because of the greater trading clout that you possess," he said.

LFG's new trading desk will be in Chicago, where the Stein Roe desk had been, said Wendy Rauch, a spokesperson for Liberty Funds Group. It should be operating by early next year, she said.

The desk will be led by Sharon Lenzi, currently vice president and head trader for Colonial, who will become senior vice president and head of equity trading for LFG. Lenzi will be assisted by lead traders Clare Hounsell and Yvonne Shields.

One central desk also creates an even workflow for both fund companies, Hansen said.

"There's a lot of peaks and valleys in the order flow of any equity trading desk, and the more you can spread that larger volume of peaks and flows over your trading people, we believe you can do your trading more efficiently," he said.

Colonial is adopting the same trade management computer systems that Stein Roe has used, Lenzi said. The back office and fund accounting and settlement have already been consolidated in the Boston office.