Karen Heidelberger figured trading might be a career compatible with her personality after running a group inside Merrill Lynch’s mergers and acquisitions department from 1996 to 1998 that tried to resolve conflicts ahead of time.
The group was responsible for ensuring that Merrill Lynch didn’t have a business or legal conflict of interest before accepting an investment banking assignment. In the role, she had to work with the heads of deal-making and investment banking and to make big decisions very quickly.
She went back to school, from 1998 to 2000, to get a business degree at Harvard University. During that time “was thinking about what I loved about that job and realized that trading fit those criteria,” she said. “You’re making decisions quickly using the information that’s available and making the best decision that you can. That’s trading.”
While in business school, Heidelberger took an internship in equity trading at Merrill Lynch and met Jeff Kaplan, who is now head of trading at Deerfield Management in New York, an investment firm focused on health care. www.deerfield.com Kaplan moved to Deerfield, and recruited Heidelberger to the firm, where she has worked for over 10 years. She is now a trader in equities and fixed-income products, as well as a partner.
Heidelberger’s insight at business school proved correct: she loves her job, and especially likes the collaborative atmosphere at Deerfield, where the trading desk has input into the process of making decisions by providing color about how things are trading.
For instance, Heidelberger might hear about a particular company in the morning meeting that doesn’t trade that well “and all of a sudden we see a seller out there,” she said. In that case, she would raise the issue with the portfolio manager and analyst.
Stock action can play a role in the timing of the firm’s buying and selling decisions, she said.
Deerfield, predominantly an equity trading shop, is focused on healthcare, and that is another aspect that Heidelberger likes. “It’s always changing: there’s some kind of new drug, governmental policy or new generic, and you can learn something new every day,” she said. “Let alone learn about how all the stocks trade,” she said, adding, “it’s very mentally engaging.”
Heidelberger said the biggest challenge is to find liquidity “where we can, because a lot of the names we traffic in are very illiquid,” and not move the stock in the process. “Our trading philosophy is to find the natural other side trading a block, rather than buying it from a broker. So we spend a lot of time and are patient and diligent with our orders.” But a big challenge is that “nobody really wants to trade in block anymore.”
Being patient means that, for instance, if she knows there’s a seller for a very illiquid stock, “there are chances we won’t trade until I find that seller.” She would know there is a seller because “you can feel it in the stock. The health care world is very small, and we know what brokers are trading what stocks. We’re diligent about making sure we know what’s going on in a stock.”
Heidelberger says she “micromanages” her orders. “If I have an order to buy 100,000 shares of something, I’m going to watch every tick,” she said.
“Knowing which broker has which strengths in which stock-so much of this business is being alert and knowing what you’re trading and who you’re trading with,” she said.
She added that “We’re lucky in health care. Most of the people who have been doing it have been doing it for a very long time. It’s very helpful when people understand the stocks that they’re trading particularly in health care. But it’s my job to make sure I get the best price on something. And I want to have control over that.”
“We really care,” she said. “It’s not a 100 to trade and I better just get 25 on the tape somehow,” she said. “It’s where and how am I going to do that? Where and how am I going to find the right liquidity at the right price?”
The firm uses dark pools such as Liquidnet, BIDS Trading and BlockCross, “so if there is a natural out there it will pop up and hopefully we can get it to execute,” she said.
Deerfield uses algos sparingly, says Heidelberger. “We get lots of information from the brokers in terms of management meetings and corporate access and we need to be able to pay them for that service.”
Heidelberger values her partnerships with her brokers. “We strive to have relationships with them,” she said. “The end game is for everybody to make money and for everybody to be happy. We want to compensate them for the services that they’ve given us and we don’t want to do it in a manner that’s less than the sum of two parts.”
It’s, of course, challenging to keep abreast of all of the information on the stocks, including research notes and chat rooms, she said. “We need to know our stocks,” she said. “That’s part of the reason I get in at 6:30 a.m.”
Heidelberg is also responsible for trading debt for the firm. “It’s a challenging environment and there’s not a lot of liquidity in the health care debt issues,” she said.
Keeping her awake at night if finding the right balance between her job and her children, ages six and seven. “I love my kids and I love my job and finding the balance between both of them so I can give 100 percent to both can be challenging,” she said.
Besides getting in to the office at the crack of dawn, she often goes out for business dinners. “It’s a lot of juggling,” she said. “I’m lucky that I have a very understanding husband who helps to pick up a lot of the load. But it’s definitely an issue. If your kid is sick at night and you have to get to work at 6:30 in the morning, it’s not always a fun thing.”
DEERFIELD MANAGEMENT
Equity AUM: $3B
Traders on desk: 5
Broker list: 40+
Average commission: 3 cents
OMS: Eze Castle
