December 2, 2013

Off the Beaten Path

Thornburg Investment Management's head of equity trading keeps a keen eye out for bumps in the road-like HFT, algorithms and dark pools.

By By Phil Albinus

Phil Albinus

If it were up to Thomas Garcia, high-frequency trading would slow down a bit. The head of equity trading for Thornburg Investment Management of Santa Fe, N.M., oversees a portfolio valued at $95 billion. And while he loves making money for his pension fund, mutual fund and high-net-worth clients, HFT are a concern.

"I think the biggest problem is, everything is moving so much faster than when I started in the business 20 years ago. When I first started trading, I didn't know what a millisecond was; but now they're talking speeds of a millisecond," he said. "I actually looked up the definition of millisecond just to make sure I had the right term, that it was one one-thousandth of a second. They put it in a very good terms, that a millisecond is to one second as one second is to 16.67 minutes."

The New Mexico native isn't scared of high-speed trading so much as the tactics of the HFT traders themselves.

"It seems like they're taking up a lot more of the bandwidth with the trades they end up canceling. They bid, they cancel, bid, cancel-but they're just taking up more and more bandwidth," he said.

Of the $95 billion he runs, Garcia estimates about 85 percent is equities, with 15 percent in bonds. He oversees a 24-hour trading desk that trades around the globe six days a week. His Asia trader comes in on Sunday night, so Saturday is the only non-trading day.

His team consists of 10 traders, but he's actually looking to expand that to 11 after one leaves later this year. "I'm hiring more of a senior trader with experience who can come in and hit the ground running. The other is more of a junior trading position where we could mold him the Thornburg way. He'll start off by working up orders and observe what we're doing, and then he'll start trading," he said.

Garcia doesn't foresee any problem hiring people to come to live in New Mexico. "We've hired people from all around the U.S., and we get résumés from everywhere. One of the unique things about Thornburg is that we're not in a big city. We're not Chicago or New York. The population here is somewhere probably near 100,000," he said.

"It's a great place. We've got the mountains and good skiing here. There are some people who love the big city, and there are some who say, 'I want out of here.' So we're able to get some pretty good talent," he said.

Garcia is extremely careful about the algorithms he and his team use, and they often customize the formulas they get from their brokers. "We talked to a lot of programmers about how their algos work and we've said, 'We like this, but can you add this, or can you take this away, or can you not route to this venue?'" he recalled.

When it comes to dark pools, Garcia's team uses them, but with caution. "You've got to be extremely careful, because HFT guys are in dark pools, and some sit there with 100 shares on the buyside and sellside and see which side gets hit. Then they go, 'OK, there's a buyer' and take out the offers," he said.

Garcia thinks 2014 will be a solid year. "I think we're on the right path now. I'm not expecting a super-stellar year, but I think the economic numbers around the world are for the most part good and getting better," he said. "There's some room for growth, and as long as the U.S. drives things and the Fed can slowly get us off of this life support...if we continue to see the economic numbers improve as we have, I think 2014 can look pretty good."

THORNBURG INVESTMENT

AUM: $95 billion

Desk: 10 traders

Broker List: 70

OMS: Charles River

EMS: N/A

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