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Reinventing Trading Venues: How AI Can Help Create a More Efficient Market

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June 30, 1999

Better Best Execution

By Michael L. O'Reilly

Getting best execution can mean a little more to Ellen Parker Hanlin and her firm.

As the manager of equity trading at Howard Hughes Medical Institute in Chevy Chase, Md., asset allocations from her firm's account fund medical research - so every dollar counts.

Last year, Howard Hughes disbursed $507 million for medical research at universities, laboratories and teaching hospitals across the U.S., up 8 percent from its disbursements in 1997.

The institute was chartered in 1953 by eccentric multi-millionaire Howard Hughes - whose businesses branched into the airline industry, movies and defense contracting - and has been headed by a group of trustees since Hughes' death in 1976.

Howard Hughes funds medical research in the fields of cell biology, genetics, immunology, neuroscience and structural biology. That research regularly leads to important discoveries in medical science. Last month, for example, Howard Hughes researchers identified the three-dimensional structure of a harpoon protein used by large viruses to fuse to host cells. That discovery could lead to the development of drugs that prevent viral infections - from mumps and measles to influenza and HIV - by jamming this critical infectious machinery.

Always conscious then of the added benefit to best execution, Hanlin keeps her brokerage list short to monitor trades closely.

"Brokers are a little kinder and gentler working with us," Hanlin said. "Most brokers are very nice with me. It can't be a reflection of my acerbic personality. It's the account. I'm not saying they show me favoritism, but they're a little nicer."

Hanlin works with 18 brokers, at large firms, mid-sized firms and smaller regional boutiques. Because her firm invests mostly in liquid blue-chip stocks, Hanlin rarely needs a broker to commit capital to fill an order.

She avoids adversarial relationships with the brokers she works with, despite the stereotypical tension that is thought to exist between buy-side and sell-side traders.

"I know Wall Street can be rapacious," Hanlin said. "I never felt [brokers] were rapacious with me. If they were, I would get pretty angry. I enjoy working with everyone I deal with. If I didn't, I wouldn't work with them. Major houses don't matter to me. There are plenty of brokers out there."

Hanlin has worked with brokers a lot more recently, averaging 15 to 20 trades a day as Howard Hughes rebuilds its equity portfolio.

Overall, the firm has $12 billion in assets, and Hanlin trades for the $1.6 billion equity portfolio managed internally at Howard Hughes. Traditionally, the firm invests in strong, blue-chip companies, and the equity portfolio has low exposure to risk and little turnover.

Last year, the firm's equity portfolio manager left the firm, and the investment department took its time in finding the right person to fill the opening.

In April, Richard Pender was brought into the firm to manage the equity portfolio, joining Hanlin and five analysts in the investment department. So over the last two months, Hanlin has been busy helping Pender rebuild the Howard Hughes equity portfolio.

"What's simple here is we have one account, so you devote all of your attention to it," she said. "But there's not much difference in how the investment process works. Everybody has the same goal of making money. But our goal is a little different. We're making money for medical research."