JPMorgan Asset Management may be somewhat removed from the high drama at its parent bank, but JPMorgan will probably go down in the annals of banking history. The third largest global investment bank agreed in March, with the backing of the US Federal Reserve, to buy the slightly smaller but credit crunched Bear Stearns for a fraction of what the stock had been worth previously. The first such US government rescue since the Great Depression shook the very foundations of Wall Street and the wider financial world.
As the details of the deal are hammered out, JPMorgan Asset Management continues to grapple with the ongoing instability in the market. "I'd like to think that we are over the worst of the volatility, but I have been very surprised at the severity of it so far," says Daemon Bear, head of equity trading at JPMorgan Asset Management in London. "We just take it one day at a time and try to be as calm and safe as possible."
Bear is a well-known figure in the European equity markets, representing one of the largest buy-side firms on the Street. JPMorgan Asset Management has $1.2 trillion in assets under management globally and Bear's European team of equity traders is responsible for about $210 billion of that. Bear joined Chase Fleming Investment Management as a fixed-income and foreign exchange (FX) trader in 1998 and then moved over to run the equities business when Chase Fleming merged with JPMorgan Investment Management in 2002.
The merging of three successful businesses-Chase Asset Management, Fleming Investment Management and JPMorgan Asset Management-brought three distinct investment processes into one firm, as well as different regional expertise, says Bear. JPMorgan was strong in the US institutional space, while Fleming was better placed for European retail. The firm now specializes in both. For the trading desks in the US, Europe and Asia, that varied expertise carries over. "My clients, the fund managers, have different styles of management depending on the type of mandate," explains Bear. "We have to be a very flexible trading operation in order to satisfy the needs of our clients."
Bear's trading team comprises 17 people, who are split according to their geographical remit, and trade equities, derivatives and convertible bonds. Fixed-income and FX trading are managed from a separate desk. The equities desk also includes a trading strategist who monitors execution performance, and a technology manager, Neil Joseph, who supports the trading applications.
NIGHT AND DAY
Amid talk of integrated front offices and the convergence of the order management system (OMS) and execution management system (EMS), JPMorgan Asset Manage-ment's approach is a little different. The firm has opted for a combination of building and buying, creating its own OMS about five years ago, and installing an EMS from Portware two-and-a-half years later. "Four years ago, the landscape for trading tech-nology was like night and day compared to what we have now," says Bear. "The pace of change in this space is alarming and we need to be constantly aware of what's out there and what's coming next."
As the more recently installed EMS gains greater functionality, the OMS has been relegated to the role of processing tool, Bear says. Ninety percent of the actual trading functionality is now gained through the adjoining EMS, while the OMS handles the internal processing. "We're going through a process of de-functionalizing our OMS so as to maintain maximum functionality in the EMS," Bear explains. The OMS remains a crucial system, but for internal order management only. "All of the vitally important processing parts of our business are controlled within the OMS, but we only have one FIX connection out of it and that is to Portware."
Bear works with Portware to evolve and develop his EMS so that it can cope with the changing market. JPMorgan Asset Management chose the vendor for its ability to customize features. "We needed capability that we had never housed internally and we needed it quickly, which is why we went for a vendor," Bear explains. "Portware's ability to be flexible and to allow us to redesign the system to suit our own needs was a big reason why we went with them."
Such EMS flexibility includes connecting to new trading venues and crossing net-works as they appear, and working with brokers to use their advanced trading tools. Three years on from the rollout, the Euro-pean market is evolving faster than ever.
CLIENT DEMANDS
The use of more advanced trading tools and venues is driven by the firm's increasingly demanding clients. "Five years ago, if we were talking to a possible client who wanted to buy into one of our funds, they'd ask solely for an indication of execution performance," says Bear. "But clients now want to know all about trading costs, commission rates, execution tools and trading venues." That changing focus has added to the drive for new technology at JPMorgan Asset Management.
The analysis and control of trade costs is high on Bear's agenda. He uses Lehman Brothers' LehmanLive platform and ITG's Agency Cost Estimator (ACE) to monitor estimated trade costs before execution. "The costs of execution have to be clearly identifiable and must fall under the responsibility of the traders," he says. Bear also subscribes to Plexus and Itero transaction management tools so that clients can compare his desk's performance to the rest of the market.
The major change in the last 18 months, he says, is that algorithms are now used to trade high-touch orders, which have traditionally required regular intervention on the part of the executing broker-a development he would not have foreseen two years ago. "Under the impact of the Markets in Financial Instruments Directive (MiFID) and the desire to avoid market impact, algorithmic trading has become relevant to our entire book of business," he says.
Bear uses about 12 brokers for algorithmic trading, working especially closely with a few providers to develop the next generation of tools. But he says that as the buy side uses algorithms for more and more of their orders, there is a danger of overuse and possible neglect of orders as a result. "The danger is that algorithmic orders are left to work without supervision," Bear explains. "It's actually as time-consuming for one of my traders to manage an order via an algorithm as it is to manage it manually, but I'm not entirely sure that the buy side as a whole views it to that degree."
OPAQUE MARKET
As the European market continues to change and the volatility keeps all traders on their toes, Bear faces a number of challenges. Above all else, he says that transparency has become a major issue for buy-side firms since MiFID came into force: "Trade reporting remains a huge stumbling block for us and I personally feel that there was greater transparency prior to Nov. 1, 2007, when MiFID took effect."
Bear says the introduction of new, cheaper reporting venues, such as Markit Boat and Chi-X, coupled with the loosening of deadlines for trade reporting, have made it far more difficult to assess where the liquidity lies. Trades are often reported several days late and may be printed on multiple venues, creating a much more opaque market overall. Bear says he believes that the reporting problems will be ironed out in due course, but for the time being, they are making his job more complicated.
The proliferation of dark pools and multilateral trading facilities (MTFs) has added a new twist. "Trying to access liquidity on a number of venues unquestionably presents a challenge," he says. "But it's a challenge to which, I believe, technology will provide the answer." That technology has yet to fully evolve, but for now, Bear focuses on counterparty relationships to make sure they connect him to the best trading venues and use smart order routing technology effectively. In parallel to that, he says that some smart routing capability must be developed in-house, but that remains in its early stages.
Has MiFID and the simultaneous market volatility been more demanding than previous industry challenges? "I was in the City of London in 1987 when it was all very fierce in a short space of time," he recalls, referring to the global stock market crash on "Black Monday," Oct. 19, 1987. "The situation now is certainly more of a drip-feed, but for the moment, there doesn't seem to be an end to it all-just a stream of negative news, which we try to guide ourselves around as best as possible."
JPMorgan AM Stats CEO: Jes Staley Global Assets Under Management: $1.2 trillion Americas Assets Under Management: $760 billion International Assets Under Management: $433 billion Portfolio Managers: 370 Research Analysts: 280 (Figures as of Dec. 31, 2007) |
Biography Name: Daemon Bear Age: 37 Hometown: Hackney, East London, UK Family: Married with a son and daughter At JPMorgan Asset Management: 10 years Previous Job: Trader at WorldInvest Investment Managers, which is now New Star Asset Management First Job: A summer job at Credit Suisse Buckmaster & Moore in 1987 Last Book Read: The Greatest Footballer You Never Saw by Paul McGuigan Favorite Place to Be: At home Last Holiday: Euro Disney Last Gadget Bought: Pressurized bottle opener Best Part of Job: The people |