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January 1, 2003

Dresdner's Tougher Time

By Nina Mehta

Joe Rodela, director of U.S. equity trading for Dresdner RCM Global Investors, a San Francisco-based institutional asset manager, says it's a brutal environment. "You'd be extremely lucky to sell something at the very top and buy it at the very bottom," he says.

As of the third quarter of 2002 Dresdner RCM had $42.5 billion in assets under management. A primarily plain-vanilla growth manager, the firm invests money for corporations, public pension funds, nonprofit organizations, unions, high-net-worth individuals and mutual funds. It also has some advisory clients.

Historically, Dresdner RCM hasn't been a big trader on ECNs. "We use them," says Rodela. "But for our information and capital needs, we still believe in establishing relationships with brokers." Dresdner RCM used to have a portfolio of debt instruments, but that slice of the pie was shifted over to PIMCO after Allianz bought Dresdner Bank in 2001.

Dresdner RCM's trading desk is organized by product group. Traders work with analysts and portfolio managers. Dresdner RCM also does technical analysis. Rodela, who trades as well as oversees the trading operation for U.S. equities (he has a counterpart in Frankfurt and in Singapore for foreign stocks), may, for instance, recommend that a position be trimmed because it is suddenly too expensive. Rodela has seen pricey stocks burn many colleagues as well as his own firm.

Looking back on the tech bubble that collapsed in 2000, Rodela notes that Dresdner RCM made a lot of money for clients but also faced a Catch-22. Almost any stock with a dot-com attached to it saw enormous valuations. "We have a disciplined investment strategy here and some of those valuations were taking us out of that because, at the same time, you're paid to perform," he said. "If stocks continue to go up, you need to be there. When the bear market arrived and stock prices came down by 50 percent, 60 percent, 70 percent - or even, in some cases, 90 percent - some of our performance went down as well."

In the aftermath, Dresdner RCM made some changes on the trading desk. It sticks more rigorously to a disciplined approach to trading, and it altered the way it executes orders.

The firm has a group of core holdings based on fundamentals and trades around those holdings, trimming or overweighting positions based on outlook.

Dresdner RCM also now spreads its trades out over the course of a day. This wasn't necessary about three years ago. If the desk now wants to buy a couple of hundred thousand shares of, say, Microsoft, it might buy 20 percent of the order on the opening, see how the market is acting, and perhaps buy another 20 percent in the next hour. An investment manager might then call the firm's best brokers and ask what they think about the conditions. If it looks okay, the trader may buy another 20 percent. Part of the order is always saved for the end of the day.

"It's saving some powder," as Rodela puts it. "If the market runs in the last hour, we feel okay because we have already bought 80 percent of our order, and if the market crashes, then we still feel okay because we have 20 percent of our order to average down with."

Dresdner RCM responds to ever-present volatility by trying to maintain a handle on current and upcoming events. If 15 companies RCM is long are speaking at a tech conference, "We make it known to our brokers that we want to know anything that comes out of the conference that's going to affect us - meaning those companies," Rodela says. "So we get a heads up pretty fast."

In this tougher market, Rodela's firm needs every advantage it can get.