We caught up with Tina Bach, chief dealer at Nordea Asset Management who is a valued member of our Buy-side Trading Community and regular attendee to the Alpha Trader Forums. Tina gives us an in-depth view and shares her experiences about her role at Nordea and the Fixed Income markets.
Please describe your role and responsibilities within Nordea Asset Management today.
Nordea Asset Management has around €229bn AUM and including Wealth Management, €350bn. The global trading team has a total of around 30 people which consists of Fixed Income trading, Equity trading, FX trading, a quant trading team and Portfolio Implementation. On top of that we have a tech structure with an agile dedicated development unit.
I am a part of the Fixed Income trading team, and we are five people covering a broad range of products from Corporate Credit (IG and HY), Financials, EM debt, Rates, CDS, IRS, Futures, Repo’s to an investment fund based on Machine Learning. We work with an investment boutique structure and with a champion concept with specialisation within the different areas. I am responsible for all trading within the Financial universe across all capital structures. I also manage our Short Term funds on a daily basis and I am the back up on IG credit, so I am very much involved there as well.
Trading is an integrated part of the investment process. The PM’s are our clients, so collaboration and teamwork with a continuous dialogue between trading and PM’s are essential. My main job is to add value by providing all kinds of advisory and intelligent trading for our investment boutiques, PM’s – and especially the PM’s responsible for the Financial sector, which should enable generation of return.
The specialisation role means that I am responsible for everything within trading in the financial universe, meaning being on top of the trading processes, knowing the product, the market, the counterparties, venues etc. I have very close interaction and cooperation with the Portfolio Managers in different teams – but of course in particular, the Financial PM’s and Analysts. In order to actively advise the PM’s in the best way and execute according to their needs, it is also important for me to be familiar with the portfolios and the investment strategies. By doing so, I am able to act proactively if and when I see liquidity opportunities in the market.
We are going through the biggest capital market transformation ever seen and at Nordea AM we need to be adaptive and navigate wisely to capture all the opportunities out of this rapidly changing environment. This is challenging the traditional buy-side trading and execution capabilities. Todays trading in financial instruments is going through a massive change, driven by several disruptive factors affecting the whole market place of which regulation is one of them – with MIFID II as the kick start. We have already now seen an increased complexity in the whole investment process, which our trading team is a huge part of. We need to adapt to this environment, which also demands us to rethink and review our processes, to evaluate if something can be improved.
Our trading team has already been through a huge transformation and it is just the start of a long and very interesting journey, where technology plays a huge roll. We now operate with a much more data driven approach in an increasingly complex trading environment, but I will come back to that.
How do you perceive the brokers are differentiating with their high and low touch services, if at all, in the increasingly electronic market within both the primary and secondary markets?
I think we first of all need to define high and low touch within the sell-side to answer your question. If we are talking ‘liquid’ vs. ‘illiquid’ trades, more and more sell-sides introduce algo trading for the low touch/liquid flow in rates and small sizes in credits. I do not always find them working very well even in the less volatile markets though. After MIFID II, the traditional buy-side to sell-side relationship has changed in order to achieve best execution, which has led to a shift towards greater levels of electronic trading. However, despite the fact that we entered the next decade in this century, I still feel the fact that quite a few sell-side continue to struggle with manual updates of runs, flows, axes etc. and the infrastructure is not yet in place. For rates, I would say automated execution is way ahead. It is my impression that sell-side (the same way as the buy-side) is trying to use technology to automate as much of the low touch secondary market trading as possible in order to allocate their time on their high touch service. I am sure that automated trading will increase going forward and we will also see more no touch trading for smaller sizes through DMA and STP.
Looking at other interpretations of the definitions, if the differentiation between high and low touch services is referring to trading a block or in small sizes, I would say that the broker differentiation is less significant for rates compared to credit. In credit, small flows might get ignored from time to time, especially in volatile markets, but I do not view it as a problem in general as the sell-side know the fact that they also have to execute the small orders in order to see the larger ones.
The traditional buy-side/sell-side relationship has been redefined due to structural market changes, regulation and enhanced technology. As an example, the sell-side are increasingly under pressure due to their reduced balance sheets and the introduction of new market participants such as non-bank market makers and agency brokers, so the sell-side role has shifted from facilitating risk to facility/recycle of flow.
After MIFID II, there has been a tendency among the sell-side, who previously were in contact with both the PMs and the trading desks, to mainly focus on the flow from the trading desks instead of the PM coverage. I do not feel this change has been a huge problem, as our PM’s still have access to analysts, sales people, counterparties etc as we do at the trading desk. However, some of our PMs experience a bit less coverage directly from the sales people though. But not all of our PMs are overly concerned about the sell-side interaction - some of our PMs prefer to talk to them directly and others prefer to let all information go through our trading desks.
As the buy-side have shifted their trading towards greater levels of electronic trading, the whole trading process and behaviour has changed from the point of order generation, pre-trade, execution through to post trade. The improved use of technology, enhanced analysis and data aggregation have improved the buy-side possibilities to see alternative ways of accessing the liquidity and execution methods.
It is important not to forget that the human aspect and relationship-based trading is still important especially for high touch/illiquid trading. The need for liquidity seeking high touch services is still there. The negotiation part of a trade is still very important and I think it is part of our DNA as traders. We do not interact the same way with each counterparty and knowing your counterparties and their business model is crucial. This is as important as knowing the market. Building a relationship with your counterparty is key and important for the coming trades. For our traders it makes a lot of sense to talk to selected traders as well as the sales people in order to get market colour, flow information etc. Trading is an interactive and dynamic process and the evaluation of your counterparties is an important factor in this aspect. Broker evaluation needs to be both quantitative and qualitative and preferable in realtime.
As we still experience evolving trends among how the buy-side use bond trading platforms, how do you feel the race is progressing between dominant legacy and challenger brands? Has competitive pressure resulted in overall innovation and how do you foresee the competitive landscape looking like in 3 years’ time?
The Fixed Income market is facing a growing complexity and adapting to that, our trading team needs to develop and deliver smarter ways of trading based upon eg. optimised technology. Our traders now have alternative ways of trading than the traditional RFQ model and with more protocols available, our approach is changing. The need for a system that aggregates all different Fixed Income strategies is increasingly becoming a necessity in this more and more complex world with fragmented liquidity and diverse trading strategies. To manage, I think we need both better internal and external tools. Data plays a huge role in this, and our different trading desks are heavily involved in all aspects of the technology workflow, bringing the trading, investment and execution process closer together. We aim to create an open infrastructure that allows traders, quants and analyst to work with data across the whole value chain.
We are constantly looking to improve our trading processes for a more efficient way of trading to meet and evidence best execution. Data and automation are key within this evolving area. We talk a lot about data, which is crucial, but the quality and accuracy of data and the use of it is the big challenge. We tend to jump on all data, but to filter out the noise, is hard and a time consuming job.
However, I think in the near future we will see a more efficient aggregation of price streams, which will help automate the low touch business further, turning it into a no touch business. In general, I think that automation and data /technology will develop Fixed Income bond trading over the coming years. Technology must act as an enabler that shifts our business focus from processing to advice. Automation helps us to increase efficiency and scalability by ensuring that simple tasks and routines are being automated leaving time to focus on more complex tasks. Therefore, it is important that we as the buy-side, stay in the forefront, both regarding systems, data, tools etc.
For the primary market we are not yet there with “electronification” and it is still an onerous process. Despite initiatives such as IPREO, Direct Books, Liquidnet etc, I think we are still far from a solution. We need a real time tool covering the whole market, but no one seems to fulfull all our needs. Multiple primary issuance solutions will also lead to the need for an aggregation. I would like to see a system, which is able to collect all the primary market information and details, including updates, allocations etc, preferably with full STP, to our OMS.
I am not the data specialist or architect within our team, so developing internal tools is not me. I do however have a clear view of what technologies I am missing and what could be helpful or even needed in my daily work. I do not understand why vendors have not been successful in fulfilling the buy-side’s needs for fixed income trading platforms, aggregation of data, EMS, pre-trade engine, post trade analysis (TCA) etc. The discussion has been going on for years now and all vendors should already know by now that they cannot just put an equity framework into Fixed Income trading. Why should it be that hard?
There is no single best provider that supports the entire life cycle of a trade, from pre-trade to compliance, and you need to review the resources that you have internally to try to find what suits you best. At Nordea Asset Management we have taken on the responsibility to build our own systems and tools to overcome the shortcomings of the external vendor’s solutions. We are leveraging our existing infrastructure as a backbone while building further to improve automatisation capabilities with both external partners and internal development teams. Tools have been and will continuously be created. It is a long, ongoing process and we do not yet have all the tools, technology and data we would like. I guess the development will never end.
Competition among platforms/vendors is always good. Electronification and competition has improved the data quality across the providers but there is still a long way regarding the accuracy of data. I think we have seen innovation from both the legacy players and the newcomers. The new initiatives attempt different approaches and we see a tendency among the old legacy players to try to follow, some with greater success than others. I expect to see even more participating brands in the coming years which we have already begun to see again. This time it is not only the trading venues, pre-trade aggregators, TCA providers etc but to a greater extent, EMS providers and vendors allowing for game theories, robotic approaches, analysis and more advanced algo’s.
There is a possibility of a threat from external disrupters with potential for tech firms to take over both buy and sell side roles but I think we are a while away from that just yet.
As we still see new vendors entering the stage, we cannot engage with all new venues and platforms. I think the industry struggles with supporting new viable initiatives to achieve the critical mass which is important for instance dark pools. I think all-to-all (anonymous) trading is another evolving trend and one of the solutions to structure the market and help sourcing liquidity in this fragmented market. As long as we do not have a utility to connect all market participants, I would like to see more aggregation of platform/vendors so we don’t spread our trades over too many venues and never meet. Buy-side bond traders should ideally take the initiative of getting outside of their comfort zone and move towards price making and buy-side to buy-side trading in order to reduce their information leakage. It may require a change of mind and skillset, but I believe it is the way to go forward.
I often hear the counterarguments from the sell side as they see buy side to buy side trading as a threat to their business model. I do not agree as, when I meet other buy side in a block trade (which might never have been done otherwise), these trades may require both of us to finance/invest in the other side of our trades, which the sell side may be better suited for. The main focus on all-to-all anonymous trading seems to be buy side to buy side, which makes the progress slow and difficult. A few years down the line, with several technology vendors trying to enter the stage, we are still trading with “the usual suspects” and I now find that we are in the early stage of electronic bond trading within Fixed Income.
Timing is always difficult, but we have just started a journey of evolution and change and the Fixed Income trading world will look very different in three years time. I think the rate of change will increase. The competition between technology providers, trying to aggregate and analyse data, will emerge and we will still see new vendors/platforms. Ultimately, I hope for improved aggregation. Technology will continue to lead the way, add value in the future and help us optimise the trading processes.
Automation makes our trading team scalable in the growing AUM environment and the data tools help us target the most appropriate execution method so we know where to go for best execution and the likely cost/benefit profile of a trade.
Data will hopefully become more reliable and accurate leading us to continue to be more quantitative driven. Continued access to competitive pricing and ability to source liquidity is crucial for our business. The option of only relying on traditional sell-side brokers delivering full service is no longer there as new players enter and new ways of trading are opened up through new ways of using data and technology.
I think we will see a further transformation of the traditional buy-side/sell-side relationship with buy side, being the owner of the assets, becoming more like liquidity providers. The development in AI and Machine Learning is fascinating and fast but we must not forget the fact that it will not capture the irrational behaviour of the market so there will still be a need for humans.
Do you see portfolio trading of bonds with electronic market makers as a viable option? If ‘yes’ – how do you see this interaction evolving?
Yes, I certainly do. Portfolio trading has been an area of huge development last year and I foresee this to continue. ETF’s are becoming a big part of the market and has led to the emerging of specialised non-bank players, who electronically price requests for multiple line items in one trade.
Portfolio trading is very important to us and we are looking deeply into how we can leverage this process. Being able to have a very good idea of where we can execute on the wire is imperative in choosing the right executing strategy. We have built and tested our own model for this and as the post-trade analysis shows very good and trustworthy results, we increasingly do more of those trades now.
Portfolio trading helps us in our rebalancing, trading in/out flow and leveraging data, where we sometimes need to buy/sell every single line item in a portfolio. So, for us it has helped to access liquidity at a low cost with reduced manual workload. The process is not fully automated (STP) yet and we still need to do some manual activities but it is already significantly less time consuming compared to trading each line item and to a lower cost. There is still room for improvement as I expect the internal solution will not be suitable in the long run as portfolio trading will continue to grow and become a part of our daily work. So right now, the remaining challenge for us is to improve the workflow with full automation/STP. While portfolio trading is now yet another option, we also need to identify if it is the optimal and suitable approach for each portfolio.
I think we need the platforms to step in with solutions for portfolio trading, so we as traders can focus on our main job of negotiating with the sell side and ETF providers. We have seen a couple of attempts by a few vendors but there has not yet been any solution that fully satisfies our needs.
We hear from the buy side that market colour and pre-trade intelligence are two hot areas of interest. How do you see these areas evolving within your fixed income responsibilities?
As I mentioned before, the Nordea AM traders work as champions, meaning everything from being on top of trading processes to servicing/advising the PM’s regarding pre-trade, timing, market colour etc. The champion role helps us to create clear points-of-entries and value chain optimisation. We try to act more like sell-side traders and not just be price takers. Our technology allows us to retrieve data from mulitple providers and crunch the data for our pre-trade analysis. This analysis gives us a great insight; supporting us in deciding appropriate execution methods and in price making. The alternative of only relying on traditional sell-side brokers to deliver a full service is no longer there.
Price discovery is very complex in the Fixed Income world. A pre-trade view is crucial for liquidity sourcing of block trades in order to avoid information leakage and to lower trading costs. To manage this, we work with different alternative execution methods depending upon the order (size, urgency, market timing, structure etc.).
The more complex market and trading conditions have increased the need for us traders to be involved during the full lifecycle of a trade. For example we are involved from the trade idea generation (interaction with the PM’s) to order generation, pre-trade analysis, execution method, TCA and post-trade (interaction with compliance).
Technology and trading capabilities are important in order for the traders to deliver colour and market analysis, qualitative as well as quantative, regarding market timing, positioning, market sentiment etc. We spend a lot of time filtering information and interacting with the market to get the best outcome of a trade. We often provide the PM’s with market colour in the very beginning of the investment process in order to get an impression of whether the trade idea is valid at all. Market colour on potential, ongoing or executed trades is something we also continuously provide to the PM’s. We are partnering up with the PM’s, providing them with the information they ask for. Access to enhanced pre-trade transparency and realtime post-trade transparency will improve execution quality when assessing the market regarding timing, pricing and quality as well as reduce information leakage. To provide the pre-trade and market colour information to the PM’s, we need both pricing and executing tools.
We do not have quants at our Fixed Income trading desk but we have a dedicated Fixed Income quant team within our global trading team. They help us get a much more bespoke quantitative approach in our trading and traders are partnering with both PM’s and data architects on various projects. This is not only regarding the development of tools but also helping to estimate liquidity costs, evaluation of new (and existing) instruments and upcoming market changes and developments.
While we have done a huge job internally on our use of high- low- and no-touch execution tools and channels (including Portfolio Trading) it is also important that our PM’s are comfortable with the new processes, methods and criterias we are using when we execute trades. The PM’s have also systemised their processes and are in the forefront of the investment strategies.
TCA systems would first and foremost need to become more granular to deliver useful information for the trading desk but I do predict that Machine Learing techniques will one day be used to deliver better pre-trade estimations of expected transaction costs.
Do you think that diversity with a gender balance within buy-side trading desks makes a difference?
Both yes and no. In the Nordics we have started to see much more women in the financial industry but much less on the management level, which I think is a shame. In my view, it makes a huge difference to have a gender balance in the management team, which should inspire and motivate you. However, I am not in favour of gender quotas, as I would prefer to get a job because of my merits and not due to my gender.
It is important to keep in mind that diversity is not just gender diversity. It can be religion, culture, nationality, age, education but also diversity of thoughts or minds. It is important to have people with different mindsets in your team in order to avoid unconscious bias. People that are able to think more out of the box often offer huge value to a team regardless of education, skillset, experiences etc. Teams who all think alike and have the same education and skillset will develop and evolve less.
Diversity can also be working in an environment where everyone has the opportunity to reach their full potential. Lots of research tells the fact that positive business outcome derives from a diverse workforce. Gender diversity is often mentioned as one of the ways to enhance fund perfomance in a male dominated world – so it is important.
I think we have less women in the finance industry due to the inflexible and long working hours. Another aspect is the fact that young people, especially women, look for a place to work with focus on substainability. Financing is not cool and has had / is having a hard time in the media. The financial crisis and the past stories about money laundering have not been supportive for our industry. On the other hand, ESG is an area which to a greater extent will appeal to the next generation, when choosing their future workplace. It is important to be in the forefront here.
Which diversity and inclusion activities do you think are most effective within Nordea Asset Management? Which other changes do you think firms generally need to consider to make the trading desks a more inclusive and diverse work place?
At Nordea Asset Management we follow the common guidelines from the Nordea group. We believe in equality and value diversity. We know that we make more innovative decisions by getting a greater variation of perspectives. A diverse workforce consisting of different backgrounds, traits, experiences and ways of thinking increases our creativity and improves our performance. It builds a more stable and sustainable business and brings value to our people and to our customers. For instance, we have more than 25 different nationalities with in the group, and some years ago we launched an initiative for gender balance in senior positions, and we strive for both genders to be represented among the final three candidates.
Becoming more diverse and inclusive is not a quick fix but a long and continuous journey. I think flexibility is a key aspect here, for both men and women, in order to attract more people to our industry. It requires a change of mindset, which takes time. I believe we need to rethink both where and how we recruit people and broaden the search universe for new positions, not only looking for people with the traditional skillsets.
The job describtion and content of the job has to be revised. As I mentioned before, finance is not a cool place to work. Besides flexibility, the ability to work from home might help. Not all our daily tasks are trading related and with a good back-up scheme, it should be possible. Creating temporary jobs in order to give young people, equally across genders, a deeper insight in to the industry could also be a possible solution. Over the past years, we have hired more graduates and interns which is another way to get additional skillsets into the team.
With the asset management industry strengthening their Environmental, social and governance (ESG) efforts overall. Which efforts do you see as the most effective and how does this impact your trading role?
I have no doubt that the AM industry will strengthen their ESG efforts, every survey we have seen supports this. The tremendous amount of AUM that has been signed up to the UNPRI (principles for responsible investments), where one of the pillars is to have ESG integrated in all investment processes, is further evidence in support of that statement. We already now see signs that the engagement and the real impact of this is getting an increased amount of attention. The real asset owners, our clients, are already asking for reports on the real impact of the ESG processes. We also see clients are more and more aware of how the ESG processes should be structured; more robust and repeatable. A generic response that “ESG is part of our DNA” and “we have always been very ESG aware” is not good enough anymore.
At Nordea AM we have integrated ESG into our investment processes. We also made a survey among our clients as to whether they were ready to invest in products with focus on substainability. The results showed very positive responses, so the client demand is there.
Similarly, to the developments within trading technology, I think green bonds, ESG and substainable investments have just started the journey. I find it a very interesting area and we have launched something that we call “Star Funds” within almost all investment areas here at Nordea AM and I foresee that more will come. ESG is moving mainsteam, there is no doubt about that, but I think it is important to remember that ESG might mean different things to different firms and investors (the EU Commision’s taxonomy should help define this though).
I think ESG will impact my trading role with the increased focus it gets. 2019 has been a record year for green bonds and the development will continue. It might become a scarcely traded “asset class” in the coming years on the secondary market as many investors will hold on to maturity. We will have to follow the ESG processes when trading and we need to take other things in to consideration, not just the usual financial and economic data but also the social aspect. Being on top of information that could have a negative impact on our ESG investments, is becoming increasingly important. If an investment falls out of the ESG compliant environment and we have to act upon this, the speed of reaction plays a huge role and therefore important that we act in a timely matter. Data is even more important for our ESG processes, both regarding monitoring and the number of various factors that we need to incorporate into the investment decision.
Linking this discussion back to the gender diversity topic, the fact that women are responsible for managing their own economy and investments today, I believe they will tend to pay much more attention to substainable investments.
Do you have any interests outside of work to help relieve the day to day stresses of trading? Are you able to achieve a good work life balance?
I LOVE good food and wine and to justify that I run, cycle and go to the gym (and do everything from yoga to cross fit there). Travelling with my family and friends is another way of relaxing for me and I still have several places to see on my bucket list. Japan is next and then I hope to either travel on a Safari or visit Canada. I tend to “forget” the Nordic’s as my children have been to a lot of places around the world but seen much less of Scandinavia including Denmark. It is hard to sell a holiday in the Nordics when I have to ask them to remember an umbrella when packing their suitcases for the summer holiday!
I also volunteer and am especially involved in helping children with psoriasis to get a better life with their disease. I am a member of a book club and a wine club, where we discuss much more than books and wine!
I am also a board member in our local community where I, besides the more traditional tasks like; contacting our council, arranging snow removal and maintaining our green spaces, arrange parties and other social activities for our members to bring the community together.
Work life balance. Well, it is hard but I have huge flexibility in my job, which I really value. Work life balance is one of the priorities we are working on in our global trading team and it is a very important area for Nordea Asset Management.
I must admit it is often difficult to maintain, but I am lucky to have a very understanding husband who loves to cook, so that I do not have to worry too much about that. However, I also see the lack of work life balance as a sign that I really enjoy my job.