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February 1, 2000

Buy-side Snapshot: The Caring Profession

By Sanford Wexler

Despite electronic advances, timeless trading principles still apply, according to an American Express trading executive who is in no rush to use electronic communications networks.

To Don Fredell, senior managing trader at American Express in Minneapolis, the client is always the number one priority. Whether it be the individual or the institutional client, said Fredell, they are in many respects the same. After all, he noted, mutual funds and pension accounts are all made up of individuals.

"We have to be a very good judge of character because we are dealing with customers' money," Fredell said.

American Express has about $101 billion in assets under management, including equities and fixed income securities. The firm manages 43 retail mutual funds.

Fredell, who was born and raised in rural Minnesota, graduated from South Dakota State University and served in the U.S. Air Force, where he rose to the rank of captain. After he left the service in 1972, Fredell joined the firm of Harris Upham, which merged with Smith Barney in 1976. He then moved on to Northwestern National Bank, now Norwest Bank, as a trader. A few years later, in 1984, he joined American Express (then IDS).

When Fredell started at American Express, the equity trading desk had a staff of only eight. Today, the desk numbers 12 people, including nine traders and three administrative personnel. The firm is also executing a lot more trades. Currently, the number of trades range from 200 to 300 a day.

American Express has about 30 portfolio managers. Fredell said, "the relationship between the portfolio manager and the trader is what's most important." He added, "we do not trade by product line. The people on my desk are quite capable of doing listed, over-the-counter, and most of them can also do international [securities] and derivatives."

The Minneapolis-based firm primarily trades with the leading, full-service brokerage firms. "We feel that this best serves our interests because we can get execution, research, and information," Fredell said. "They provide us with a lot of capital and full-service on listed, over-the-counter, international and derivatives trading."

Fredell said his firm is taking advantage of the soaring IPO market. "We are a fairly large player in that arena and we are a top allocation account at most places," he said. "That is because of the level of business we generate."

Like most large funds, American Express is heavily invested in growth as well as small-cap Nasdaq stocks, including a number of technology issues. "Pretty much everything is covered," Fredell said.

While an increasing number of buy-side firms are using ECNs, American Express prefers to place its orders the old-fashioned way. "We do use OptiMark on some occasions," said Fredell. "But primarily we trade with the brokerage community."

Thanks to the firm's trade and order management systems, Fredell's desk is able to handle a large volume of trades. With a few keystrokes a trading log is created with multiple accounts and the proper share amount for each is indicated. If the trade is not completed, then the trader can simply tap a few keys and the trade is pro-rate allocated' on a percentage basis to ensure all accounts get equal treatment.

Fredell says that in the near future the trading log will be created by the portfolio manager and will print out on the trader's desk. He said the buy-side trader will be electronically linked with the outside world, whether it be brokerage firms, the floor of the New York Stock Exchange or others.

Although trading is becoming more and more automated, Fredell does not envision the sales trader's job becoming obsolete. Rather, he strongly believes that having a solid relationship with the brokerage community or the floor of the New York Stock Exchange, will continue to be an integral part of the negotiation and execution process.

The former military officer is a firm believer in the team effort. "There is no such thing as a star trader at American Express," he said. "Everybody contributes to the success of our operation."

Fredell, who has been married for 24 years and is the father of four high-school age boys, treasures spending his free time with his family, especially in the countryside. "I live in rural Minnesota," he proudly said. "We are very much outdoorsmen. We like to fish, hike, and swim."