The Halo of Real Money
November 17, 2012
Goldman Sachs now wants to be the lowest cost provider of execution services. That means more technology, fewer hands.
UBS is wholly overhauling how it approaches investment banking, cutting out 10,000 jobs.
Nomura is still trying to explain how it is unbundling its execution, research and "investment solutions" businesses.
The world is changing. Asset managers now have to deal with 13 national exchanges and roughly 50 alternative trading systems. Almost every function is now handled electronically. And after all the technical glitches this year and the Flash Crash of 2010, one-third of market pros have weak confidence in the marketplace.
And the salient carrot for recruiting the next generation of pros out of institutions of higher learning is:
Make yourself the least likely person to get fired, in whatever house of Wall Street you end up in.
Odd enough is it that technology continues to disintermediate jobs, in a year noted more than anything for another decrease in volume and the unprecedented increase in high-profile technical glitches.
Ten years ago, a portfolio manager might take an order to buy a million shares and split it up between a coverage trader, a position trader, a floor broker and an exchange specialist.
Now that lineup has been pretty much winnowed down to the portfolio manager, the trader and the "liquidity center,'' the uber rubric for exchanges, alternative trading systems and pretty much anywhere you can go to find a match.
And there certainly seems to be a lot of liquidity.
Yes, there's a lot of bemoaning the fact that volumes are down. The 6.5 billion shares of average daily trading on U.S. exchanges in September compared to 8.4 billion shares last year and 11.3 billion in 2008.
But that was artificial. You don't want to gin up another credit crisis, just to get volatile markets.
If you go back to 2005, the average daily volume in that September was 4.2 billion. So over a seven-year period. You still have healthy growth.
But statisticians at a recent Tabb Group equities event in the St. Regis Hotel in Manhattan argued that the rise in volume is somehow not real. That it's driven by ... algorithmically driven trading. Electronic tacticians. High-frequency types.
"Real money" from mutual funds, pension funds and other institutions and asset managers, went the argument, is backing off. Its involvement in stock markets is at a decade low.
Nonetheless, if you're going to get your trading desk back in the game, here's a good scenario for finding the talent you need.
Go to your nearest high-quality university. Find out who the 10 top math geniuses are. Invite them to a party. Drop in a bunch of X-boxes. Connect them together. Launch them on a game of Halo. Sit back. Watch. Find out who the last person standing is. That's who you want to hire as your next trader.
And, given the continuing collapsing of roles through computer code, that person may also be your portfolio manager, one day.