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September 2, 2013

Wrap Powerhouse

By Alan Rubenfeld

Also in this article

  • Wrap Powerhouse
  • With $66 billion in assets, Morgan Stanley's managed account desk ranks largest, making it an influential player on the Street
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As an "Overlay Portfolio Manager," Morgan Stanley oversees about $66 billion in assets managed by outside firms, according to the Money Management Institute. The PPG team of equity traders is headed by Scott Kravitz, who has spent his entire 27 years working for Morgan Stanley and the 10 predecessor firms that have evolved into what is now one of the most influential buyside firms on the Street-at least in terms of its trading volume and the liquidity it provides.

Today at Morgan Stanley, Kravitz leads a team of traders who execute orders of all shapes and sizes, in equity markets all across the globe, averaging approximately 1 billion shares in a typical year. But as Kravitz noted, "It is not the volume that makes things exciting here."

 

HUGE RESPONSIBILITY

What separates Kravitz and his colleagues from other buyside desks is that he is predominately trading orders from more than 150 investment managers from across the globe. His business stems from the fact that the outside managers who reside on the Morgan Stanley platform don't directly create and execute portfolio trades. Instead, these managers are in the model delivery business, placing their portfolio weightings for each strategy on Morgan's internal platform and leaving the responsibility of execution to Kravitz's PPG trading team.

"It is a huge responsibility, making sure we handle orders in a manner that satisfies each outside portfolio manager," Kravitz said. "Undoubtedly, our performance is going to be judged against not only traditional transaction-cost analyses, but against the performance of the outside portfolio manager's own trading desk. This is why we are constantly reviewing our own TCA performance, to ensure we are achieving what we consider to be best execution." Kravitz is a voting member of Morgan Stanley's Wealth Management Best Execution Committee and presents PPG's TCA data to the committee.

See Sidebar: Kravitz's Rules

What also makes the Morgan Stanley desk unique is the dollar amount in commissions it pays to the brokers it engages as counterparties: virtually nothing. Outside of a few international markets, Kravitz and his team always trade for zero commission. The reason behind this lies in the fact that the thousands of clients who participate in Morgan Stanley's UMA program are charged an annual management fee that enables them to trade commission-free.

Despite the fact that brokers are not compensated for their efforts when trading his flow, Kravitz and his team are a highly coveted account for the sellside. "We are an account in high demand, as we can provide a significant amount of liquidity to the Street."

Additionally, being an execution-only desk and not dependent on Street research enables the Morgan desk to concentrate its flow among a chosen few counterparties: "We have a core group of fewer than 20 brokers. We are able to leverage our orders and make ourselves a meaningful account to our brokers despite the fact that we aren't directly ringing their cash register."