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April 30, 2003

The Center of the Universe

By Nina Mehta

What's so unusual about trading at Gartmore Global Investments?

How about trading in U.S. equities, which is handled at the desk headed by Christopher J. Preston? He is Gartmore's Philadelphia-based manager of U.S. equity trading. He is also, incidentally, the current secretary treasurer of the Philadelphia affiliate of the Security Traders Association.

"When we do lift-outs - such as, recently, a small-cap value trading team in Detroit - we cover them here in Philadelphia," says Preston. He and his five traders execute trades for five portfolio managers in Detroit, a handful in Columbus, Ohio, another handful in San Diego, 15 in London and 10 in Philadelphia.

Global Complex

Gartmore trades all U.S. equities and derivatives for the Gartmore Group global complex. Gartmore Group, which has about $30 billion in assets in the U.S., is the asset management arm of Nationwide, the diversified insurance and financial services firm.

A multi-style shop, the desk has a roughly 65/35 percent bias in trading large-cap/small-cap stocks. The desk executes trades for hedge funds - an expanding asset class within Gartmore - as well as ETFs. Futures on ETFs are used on a limited, typically overnight, basis.

On the technology side, Gartmore uses the LandMark electronic order management system. "We're heavy users of technology," says Preston. "Instant messaging is a big tool. We're also big users of e-mail."

Preston has full discretion over how Gartmore's commission budget is paid. The firm uses about 50 brokers-a list that's shrinking, he says.

Gartmore describes itself as a relationship shop, but it does use ECNs. "We're big fans of brokers advertising volume," says Preston. "And if we feel a broker is not performing for us, we're heavy users of the step-out function." Gartmore also cheers hometown teams, turning to local broker dealers, in part to help keep jobs in Philadelphia.

Preston, who hired two former sellside colleagues, notes that "there are no primadonnas on the desk." Gartmore stresses a team culture and so far has only promoted from within.

Each trader at Gartmore trades with his portfolio managers. (Other shops, by contrast, might operate along sector lines). "Portfolio managers are the trader's clients. We have to make them shine," says Preston. However, Gartmore may shift to sector trading, although currently it says it does not have the economies of scale to do that.

Preston's traders are always looking for new products. "As portfolio managers learn different ways to make money in this market that's giving you nothing back, the trading desk goes out of its way to promote diversity among investments," he says. "The portfolio manager must be comfortable with the product going into his portfolio."

The firm uses Plexus Group data to benchmark best execution. Gartmore consistently ranks in the top quartile. The feedback from Plexus convinced the trading desk to ask portfolio managers for more discretion.

"If you want us to be a clerk, that's one thing," Preston says. "If you want us to serve you to the best of our ability, let us take care of the trade. We'll tell you where the best liquidity is, where the best match is, where we can trade within reasonable parameters."

If a heavy seller comes into the market as a buyer, for example, the trader will try to get the PM to hold off trading immediately.

"The foremost reason is that he's going to get hurt," Preston says. "Second, the shareholder will get hurt. And third, the trade is not going to rank well on the trading scheme at Plexus."