Old Dogs, New Tricks: Keith Gertsen
Does AllianceBernstein's Quant Lab Offer Secrets for Trading?
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.
There's good reason why Keith Gertsen, global head of trading at AllianceBernstein, sounds like a risk trader when he talks about the business. He used to be one. Gertsen was global co-head of risk block deals in capital markets at Deutsche Bank in New York for two years, ending in 2004. He was among the first group of traders on Wall Street using their firms' balance sheets to take on portfolios valued in the hundreds of millions of dollars. The job entailed redistributing some of that risk after the close.
There's also good reason why Gertsen, a 14-year brokerage veteran, sounds at times like a portfolio manager. He did that, too. Gertsen ran a portfolio at a large hedge fund before joining AllianceBernstein nearly two years ago. While at the hedge fund, he did double duty and traded his portfolio.
Being both a portfolio manager and a trader, he says, might have been the best training for his current role in overseeing trading at AllianceBernstein, which manages $580 billion in equities. "My hedge fund exposure gave me a different perspective on the need to capture performance in trading," Gertsen says.
Still, while it may have been Gertsen's varied background-capital markets, derivatives, portfolio management and trading-that won him the top trading job at AllianceBernstein, his belief in the benefits of using quantitative tools fit into a larger theme at the firm. Quantitative analysis has become a valuable discipline even in the fundamental stock-picking process at AllianceBernstein.
That reliance on the quantitative is now happening in trading. "We're trying to emulate the same type of structure they have on the investment side," Gertsen says. The trading desk practices what Gertsen refers to as a "dual advocacy approach." There is a fundamental focus by the traders, topped off with quantitative analytics. "We've married fundamental expertise with quantitative analytics and measurement," he says.
Gertsen stresses that the desk is still very fundamental. It manages what he describes as an appropriate balance between various types of electronic trading and high-touch. The quantitative aspect of the desk comes from a group of quants who sit alongside the traders.
Inside the Trade
These quants use their math and computer programming skills to dig deep into the trades and analyze them. As a group, they are referred to internally as "the quant lab." They have varying levels of trading experience on both the buyside and sellside, Gertsen says.
The quants' job is twofold. First, they look at ways to interact with the market faster and more efficiently. Second, they perform diagnostics, reviewing trades and drilling down into how algorithmic trading strategies have worked in the marketplace. That diagnostic process also analyzes the effectiveness-and costs-of high-touch trades. The quants are essentially an in-house trade-cost analysis service. They also work with technology to implement ideas and enhancements.
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