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Momtchil Pojarliev
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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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August 1, 2013

A Program Trader's Rise

By Alan Rubenfeld

Radtke spent about eight years at Deutsche, working next to Baker as his trusted lieutenant. Many consider Baker to have had perhaps the greatest impact on the evolution of program trading over the past two decades. He was fearless in using firm capital to facilitate large trades. He gave institutions the ability to trade billions of dollars of stocks just by making a single phone call. He was almost singlehandedly the catalyst for dramatically lowering transaction costs and permanently changing how the buyside could execute large portfolios.

A prime example would be the Texas Permanent Fund transition in 2001. The Deutsche desk executed a $15 billion transition, involving 40 external asset managers and 2,200 securities in more than 20 markets, and executing more than 500 million shares. Most significantly, 90 percent of the transaction was executed on a blind principal bid basis. The client only revealed a statistical summary of the portfolio without disclosing the individual securities to be traded. Brokers then told the fund what they would charge to execute the portfolio on a principal basis.

The trade was breathtaking in the sheer audacity of what could be accomplished with the right combination of risk management, technology and trading skill. However, Radtke's most lasting memory of that event has little to do with the actual transaction: "We had our junior trader go out and buy us clean underwear because we had to stay overnight to finish booking the trade. It took a little explaining on the expense report."

Radtke readily admits he really owes a huge amount of his success to Baker. "I was able to learn the commitment and passion one needs to bring to the trading desk day after day after day," he said. "He repeated incessantly to me: 'The devil is in the detail.' Everything we did was double-checked. He incessantly reminded us of the operational and execution risks-never mind the hedging risks-that always lurked. One small error or overlooked detail could quickly lead to multimillion-dollar hits."

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Richard Block, who was head of global equity trading at Putnam Investments while Radtke worked at Deutsche, offered a client perspective. "I always enjoyed interacting with the Deutsche desk, as they were always clear as to what type of business they were looking to execute, and we were able to tailor our flow according to their risk appetite and come to a meeting of the minds," Block said. "We had to move merchandise, and Jeff and David enabled us to execute at prices more advantageous than trading in the marketplace."

The Deutsche team remained a powerhouse for many years. They became renowned for their willingness to commit large amounts of capital to facilitate client transitions. "People knew our ability to position firm capital to execute complex trades was unmatched, as was our ability to process the thousands of tickets generated with such a transaction," Radtke said.

Eventually the field became crowded with numerous competitors. Additionally, innovations in technology removed many of the barriers to entry. Along with changes in market structure, the advent of client-directed algorithmic trading and the gradual move of the pension fund transition management business to a more custodial banking and consulting-based model, the program trading business has become a much less profitable-but still important-endeavor for the brokerage community.