Old Dogs, New Tricks: Ray Tierney
Thinking Like Sales Traders is Tierney's Goal at MSIM
February 2008
Help Wanted: Global money manager looking for a head trader with sellside experience, knowledge of hedge funds and various asset classes, as well as a strong understanding of technology and quantitative tools needed in an effort to streamline trading processes and lower trading costs at a global organization.
Over the last two years, that could have been an ad for the last handful of top trading jobs at big buyside shops, all of which went to former sellside trading veterans. Ironically, just a half-dozen years ago, these Wall Street pros probably would not have given these jobs a second look.
Brian Conroy, a sellside and hedge fund veteran, began the trend just over two years ago when he joined Fidelity Investments. More recently, Rob Arancio joined Neuberger Berman from Lehman Brothers, where he co-headed liquid markets.
Michael Gitlin, who has global and fixed-income experience, and most recently headed equity sales at Citi, joined T. Rowe Price not long ago in a newly created job to oversee global trading.
Trade-cost analysis pioneer Wayne Wagner says these hires of top managers indicate that the buyside realizes that it needs to do a better job to rein in trading costs with streamlined processes and better technology and analytics. "The institutions have been the laggards in this area," Wagner says. "The hedge funds have been the leaders."
This feature outlines the experiences of two former sellsiders who have taken top buyside jobs: Ray Tierney of Morgan Stanley Investment Management and Keith Gertsen of AllianceBernstein. Both men filled newly created positions and are restructuring their desks around the world.
During his 16 months as global head of equity trading at Morgan Stanley Investment Management, Ray Tierney has instituted a number of initiatives--all in the name of increasing access to liquidity and driving down trading costs. "To me, there is an enormous amount of opportunity that can be captured if we manage [our desk] properly," says Tierney, a 26-year veteran of brokerage sales and distribution, his last 15 at Morgan Stanley.
Tierney, described as "intense" and "high-energy" by colleagues, hasn't wasted time in his transition to the money management division with $265 billion in equities. He has introduced new technology, upgraded systems and streamlined the processes under which the global trading desks operate. That included an upgrade of the LongView order management system, the addition of execution management systems (EMSs) and algorithmic trading, an expansion of the role of trade-cost analysis (TCA) and the introduction of guidelines for best practices.
A more subtle move has been his quest to change the mindset of those doing the trading at six desks around the globe: New York, Houston, London, Tokyo, Singapore and India. Tierney wants MSIM's traders to act more like sales traders than traditional buyside traders.
"In general, buyside desks view themselves as a service bureau for the investment team, which, to me, inherently means that they're an agent," Tierney says. "And breaking people out of that agency mold or mentality takes time. Owners take responsibility; agents take none."
In short, Tierney wants to hold everyone who touches an order at MSIM to a higher level of accountability, from the traders on his desk to the brokers whose traders and low-touch electronic trading tools execute the firm's business.
TCA's Answer
Part of that quest for accountability includes the use of TCA. By the end of the quarter, Tierney expects to have a TCA upgrade from a vendor he declined to name.
The new version will incorporate three additional time stamps, including portfolio manager and various trader handoffs. The five time stamps will allow MSIM to keep closer tabs on what happens to orders throughout the life of a trade.
This will allow the firm to better track performance and get a clearer view into the trading process. The upgrade will also allow MSIM to capture the type of algorithmic strategy the MSIM trader used for a particular trade and dig into how the strategy performed.
Right now, the system only reports the name of the broker, not the strategy. "We might find, for example, that we're using the wrong tool for a market cap or sector," Tierney explains. He thinks that TCA will allow the desk to better understand "what behaviors, strategies and relationships drive our implicit costs of execution."
While the former sales trader admits that trading is as much art as science, he says TCA can be instrumental in pointing out patterns that hurt performance. "The idea is to change behavior where it needs to be changed," he says. "And that goes both internally and externally."
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