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Some Like It Hedged

BNP Asset Management's Pojarliev discusses a variety of options to address foreign currency exposures. Although there is no single best-practice solution for addressing foreign currency exposures, institutional investors have three main choices, he says.

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December 6, 2006

Sales Traders Adjust to a Low-Touch World

By Hillary Jackson

The sales trader with four decades of experience disagrees, however, stating that "most clients do business with sales traders that they are obliged to do business with, either for soft dollar or research reasons."

High Touch

Buysiders George and Kuzminskas say that while they do pay research bills through execution, they still need high-touch, full-service sales trading. And while they expect to continue needing those types of services, they agree they're likely to get high-touch services from a smaller number of individuals at fewer firms.

It will come down to the "survival of the fittest" and the role of the sales trader will morph into a hybrid of research sales and trading sales, Kuzminskas says. "The ones who are able to multi-task across asset classes and types of trading [will survive]. It will be a multi-dimensional role."

"I still think there's a role for the sales trader. It's still a people-based business," George says. As useful as the electronic systems are, they can't tell a buyside trader what's actually happening on the other side of a trade, he notes.

Lonergan agrees. "Ten years down the line, they will be more market-savvy, [knowledgeable of the] global marketplace, trading multiple asset classes," he predicts.

Many of the traders-again on both the buyside and the sellside-describe their role going forward as an "execution consultant."

For the buyside, traders need to work closer with their portfolio managers in an effort to lessen implementation shortfall. That also means letting portfolio managers know about liquidity opportunities for stocks within the portfolio, as well as apprising them of moves of stocks within their portfolio-even if there isn't an active order in that name. Essentially, the buyside trader is more of an integral conduit for information flow from the Street.

On the sellside, that means suggesting execution strategies, having the breadth of knowledge to understand the client's portfolio and overall objectives, and providing other, truly high-touch, services.

"The way you stay relevant as a sales trader today is to look at yourself as an extension of the client, understand the portfolio, and understand the investment strategy. Preparation on the part of the sales trader now is paramount," Rice says.

On the buyside, that means working closely with both the portfolio managers and the Street, overseeing regulatory issues and staying abreast of technological developments.

"The buyside trader will be more closely aligned with the PM. It will be more of a hybrid role," Kuzminskas says.

George adds: "As a buyside trader, you need to broaden your skill set."

Rice summed up the game in one word: flexibility. "If you're fixated on a particular strategy or inflexible model, you're doomed to fail," Rice says. "If you have a vision and a strategy but [also] a model that allows for flexibility, your chances of succeeding are far greater."