Pictet Asset Management’s journey to interoperability.
Pictet Asset Management has been a Cosaic client since September 2019. Carl James, the Global Head of Fixed Income, recently joined us for a conversation around their journey to interoperability and how they’ve used our smart desktop platform, Finsemble, to automate workflow for their trading desks.
This excerpt is from our recent webinar. Full recording can be found here.
Global Head of Fixed Income Trading,
Pictet Asset Management
Dan: Hi Carl. Thanks for joining today. Let’s start with some introductions, shall we?
Carl: Sure. I’m Carl James. I run the trading for fixed income here at Pictet Asset Management. We have four desks globally, seventeen traders, and we cover all of fixed income including private debt and FX as well.
Dan: And I’m the CEO of Cosaic. We’re the producers of both ChartIQ which is a visualization engine for pre- and post-trade analytics, as well as Finsemble, a smart desktop platform used for automating and assisting trader desks, portfolio managers, and middle and back office folks.
Perhaps first off, you could tell us a little bit about Pictet Asset Management?
Carl: Pictet Asset Management is an independently owned asset management company. We have assets under management of over 200 billion. We offer multiple strategies across equity, multi-asset, FX and fixed income. We have eighteen offices globally and 900 employees—of which over 400 are investment professionals.
Interoperability: The buzz word of 2021.
Dan: Pictet got involved in interoperability quite early on. What piqued your interest in interoperability and/or the concept of using technology to automate and assist your workers?
Carl: There are many steps and it’s a continual process of transformation. It’s about understanding what’s happening and where you want to go. With increasing regulations and the power of technology you can leverage, tectonic plates are shifting within the financial markets.
You have to find a way of engaging with your assets that you have under management so that you’re more effective and more efficient. We decided to talk to the partners and give them a vision of what we wanted to do from a trading perspective. Very much like what Boris Johnson did in the UK when he was talking about leaving the European Union, he came up with the very short phrase of “Get Brexit Done.” I tried to do the same to the partners. I said automate everything. From a trading perspective, automate everything.
“I said automate everything. From a trading perspective, automate everything.”
You must drill down into the detail of what that means. The partners were happy to move forward, and gave us budget and resources. Most importantly, we have our own trading technology team, who were paramount to this journey.
Automate to engage end users.
Dan: Looking back on what you saw happening in the equity space decades ago, what do you think of the world of fixed income that you’re in now, and the concept of automation? What do you think you’ve learned from automation that took place in equities and moved to low touch order flow?
Carl: Equities provides a landscape. It’s a view, not a blueprint. Fixed income and equity are very different. Twenty years ago, when smart order routers algorithmic trading in the equity world was rolled out, you could clearly see that on both the buy and sell side of the industry people were nervous about their jobs.
To begin, I spoke to the dealing team globally and said—We want to automate everything, yes, but I don’t want traders to be transactional. I want them to be more engaged in the intellectual rigor of driving alpha for our clients.
The way to move forward is to stop people from thinking that this new automation will be the end of their jobs. You’ve got to show them that their role is developing and evolving. It’s not like on Friday they were buying and selling over the phone and Monday they come in and they’re all wearing silver suits and flying around in cars. It’s this shifting, shifting, shifting.
Digital transformation is a process, a shifting, with many iterations contributing to the final shape.
Change management across the organization.
Dan: It seems organizational and cultural change management is as big a part of this (if not bigger) than the technical journey. It seems one lesson learned from equities is eliminating the organizational and cultural fear that the trading desk is going to clear out and that people are going to lose their jobs.
“Organizational and cultural change management is as big a part of this (if not bigger) than the technical journey.”
I think the perspective that you have is to both automate and maximize high value people. The thinking is not how do I replace people to gain efficiency, but how do I make those employees more effective by giving them time to focus on higher value tasks?
The perspective you have—and the story of how you’ve driven the organizational change, both from the top at the partner level but also how you’ve driven that internally—is a really good blueprint for people.
Carl: It’s a process, it’s not a state. It’s conceptually getting the idea across to people and letting them know that it can work for them, especially interoperability.
We needed people to “get” our workflows. The head of the money market team, for example, is very good at portfolio management money markets, but he’s not a technical expert. But when we rolled out the automation piece, he got it in an instant. That’s the key bit.
Workflow Demo: Pictet Money Markets
A cumbersome, multi-step process is streamlined with Finsemble. Yield calculations are automated between FX streams and Bloomberg for faster analysis.
“Now our technologists are victims of their own success because they’ve got people banging on their door, saying can you do this, can you do that. Because they’re understanding the concept, and the power of interoperability.”
Collaboration between business and IT is key.
Dan: There’s a real disconnect between IT and business in this industry. The business doesn’t believe that they’re going to get responsive innovation, and when they ask for something from the developers they think it’s going to be costly and take six months, or at the end of the process it doesn’t come out as expected. There’s a hesitancy to take a chance.
In your journey it seems valuable how closely your technical team worked with their business counterparts and how quickly you’re able to iterate. How were you able to build that collaboration between IT and the business?
Carl: One layer is building relationships. For example, a colleague of mine and I are on the advisory board with BestX, an independent execution analysis platform that we work with. We’ve also been on the advisory board with Charles River. We make efforts to engage with these stakeholders across departments and teams. If you build the relationships, then they aren’t surprised when you knock on their door and say, we need this. We make a huge effort with our trading counterparts to build top level relationships.
Additionally, it takes a lot of long term thinking. There are short-term elements that you can put into place quickly, but what’s the long term vision.
Dan: Cosaic is all about fostering these relationships—getting different apps and technologies to speak together. Your relationships with State Street, and Bloomberg for example, shows your spirit of collaboration there, and bringing your vendors along with you on that journey is really important.
The project begins.
Carl: Our first step is to think of what the future of a smart desktop at Pictet Asset management might looks like, and what areas we can work on. Those areas turned out to be cross-application workflows. There are standard workflows that we’re used to in classic trading, like FIX and various applications that have been fine-tuned and automated. But these cross-application workflows are the difficult ones, where you are trying to get something from one application to another. That really caught our focus. That’s where the interoperability in Finsemble came into the form.
The idea of the FX Pricer workflow came from the really difficult workflow that traders had for money markets. It was a really cumbersome multi-application workflow, with lots of application switching and copying data from place to place.
Pictet FX Pricer Demo
Demo of Pictet’s FX Pricer, including Charles River and Bloomberg components within Finsemble.
FDC3, interoperability, and workflow automation.
Dan: Now that we’ve seen the reality of what you’ve built out in the past few months and we heard some of the technologies in play, it brings to mind the buzzword of FDC3 standards and desktop interoperability. FDC3 is a working group we heavily participate in. I wanted to get your take. What do you think about FDC3 and how does it play a part in your strategy?
Carl: To start, our team is on a constant technology watch, and they take the time to really look at what’s happening in the market. One very interesting thing we’ve noticed is the emerging area of desktop interoperability and FDC3.<
FDC3 standards are all about making sure that these applications (and the desktop) can talk to each other using the common language, in the same way that it worked for FIX. With FDC3, things naturally work. We are able to sync an outside vendor app, like BondCliq, with our corporate applications and it works. The end goal of FDC3 is to make things work naturally in the same way FIX has.
What is FDC3?
FDC3 is designed to be a lightweight, baseline standard for desktop interoperability—it doesn’t specify everything. It is a jumping off point for you to build a cohesive desktop environment with interconnected applications. But what is FDC3?Learn more about FDC3
Business feedback: it’s okay to fail.
Dan: So what’s been the feedback from the business? As you’re building these workflows, and hearing from traders and partners, what are they saying?
Carl: It’s about a mindset. Our CTO and partners say it’s okay to fail. Occasionally we can kind of go a little bit off pace and if it doesn’t work that’s okay. It’s not that it doesn’t work conceptually, it could be the way that you rooted or maybe your design needs to be refined or redesigned.
Pictet Demo: Credit and Axe Data
Axe data flow feed is customized and automated with aggregators and liquidity providers.
Dan: In startups we talk about the lean approach—lean methodology—the minimum unit of work that you can do to validate an assumption. I think you summarize that well, which is that you have put in both the enabling infrastructure as well as the mindset that you can “fail fast” and learn as you go. The days of the six to twelve month multi-million dollar technology project may be over, because if you fail at that it’s a big deal. If you’re iterating quickly with the traders over days or weeks, you can pivot and adjust.
Carl: That’s exactly right. Our dealer who is front and center of the money market workflow was absolutely engaged in many iterations with the technology team. Over time, it develops and develops. Exactly to your point—it doesn’t have to be multi-million.
Dan: So you talked a little bit about the qualitative side of the feedback. How do you think about the returns and how do you quantify that for the business and partners who are investing in the strategy ?
Carl: The shape of our business has really changed over the last three years because the investment teams have changed as well. We’ve taken on distressed debt. We’ve taken on some private market teams as well and that’s an expanding element. We know that regulation is getting tougher and we know that the complexity of the trades and the instruments we use. We’ve been able to overlay technology more and more so that it allows the dealers to do more complex trades and do them with—if appropriate—faster velocity.
I referenced BestX before and that’s one of the ways that we quantify. The results we get out of BestX are very good both on an absolute and relative basis as well, which links back to our brokers that we engage with because we want to do a review.
Another way we can look at it as well is the improvement of capturing of alpha. We want to drive the dealers forward to focus on generating alpha. We’ve got a specific project within the fixed income group of trading alpha and we’re using Finsemble for that as well. We did a demo to that to the project sponsors which I’m delighted to say went beautifully.
What you do with the time saved is what matters.
Dan: Regarding the money markets workflow, you said automating this workflow can save ten minutes a trade, which is great, but the truth is the ten minutes saved doesn’t matter as much as what that person can do with these ten minutes. Whether that’s doing another trade, or it’s thinking about the trade and using their brain power rather than copying and pasting and going through rote mechanical tasks, it’s about being able to focus on how to add alpha.
Carl: We’re very lucky that we have a highly skilled highly experienced dealing team. They are very good at what they do, it’s a waste of their time to simply pushing data from one screen to another. With this, their intellectual capacity can thrive and drive forward.
Dan: I believe we all want to be challenged. We want to be maximized and we want our time to be valued. I think the perspective that you have is a good one: automate so that the people on your trading desk can deliver the maximum value.
To close, do you want to discuss how your vision looks over the next couple of years?
Carl: I thought long and hard about sharing this with you, and decided yes. I would like to share a poem by Charles Mackay called No Enemies.
by Charles MackayYou have no enemies, you say?
Alas! my friend, the boast is poor;
He who has mingled in the fray
Of duty, that the brave endure,
Must have made foes! If you have none,
Small is the work that you have done.
You’ve hit no traitor on the hip,
You’ve dashed no cup from perjured lip,
You’ve never turned the wrong to right,
You’ve been a coward in the fight.
It’s about being bold. Pictet Asset Management is very much interested in our workers’ intellectual engagement. The next couple of years for us will be about layering down the technology and improving the processes.
We must make sure every single dealer has the opportunities to get engaged, whether it’s the programming, the understanding quant, or the platforms and how they can utilize them differently. I think it’s an American saying: “You fall, you storm, you norm you perform.” If you think of those classic stages, we’ve gone through the storm, we’re in the norm bit now, and we’re just just moving into the perform. Then we’ll go back because something else will come along and you go through those classic stages again.
A successful digital transformation project joins business and IT together, to collaborate both internally and externally, through different iterations to see results. Ultimately, automation and interoperability is about allowing people to do their best work. We all want to be challenged. We want to be maximized and we want our time to be valued. Pictet Asset Management’s journey to interoperability was one we learned from, and we hope our other clients do, too.