Unbundling initiatives are set to have a big impact on Asia, while a central repository could help to solve the difficulty of paying for corporate access, says Kent Rossiter of Allianz Global Investors.
Rossiter, the buyside firm's head of Asia-Pacific trading, acknowledged that assessing the value of corporate access and then justifying paying for it was a difficult question.
“We do not know the schedules of 10,000 companies coming to Asia, but corporates may know brokers’ analysts and arrange trips through them," he told AsianInvestor. "If there was one central repository to get that information then you might not need the broker to do that.”
More generally on the question of commission-sharing agreements, Rossiter was unequivocal. “Unbundling initiatives in Europe are going to have a big impact here in Asia," he said." Assigning a value to something that we get from the sell-side up until now has been an inexact science, but that looks set to change.”
Based in Hong Kong, Rossiter sees the chief purpose of his trading desk as to minimise market impact to achieve best execution. “There are people who do not understand the importance of blocks, or off-market liquidity,” he notes. “This is what I want to encourage my peers to think about, using block-crossing desks.”
Brokers provide block-crossing to the buy-side and some prioritise it more than others. There are also alternative trading networks such as ITG’s Posit Alert and Liquidnet. “We like to work in big blocks where you don’t see market volumes,” Rossiter says. “There are days when you won’t see liquidity at all, so the key to best execution is to be patient.”
Rossiter has worked for Allianz since 2001, when the German firm acquired the old Dresdner RCM Global Investors. At that point it moved to consolidate four regional trading desks (Hong Kong, Singapore, Tokyo and Melbourne) into one, now based in Hong Kong. “Communication is our advantage,” he notes. “If I want to say something to the team, I can shout it out and everyone can hear.”
AllianzGI does have traders based in Taiwan and Korea, but both are focused only on domestic equities and bonds onshore to meet business needs and local regulations. The firm’s central trading desk in Hong Kong comprises a team of seven. They have co-coverage of both equity and bonds. There are also three in trading support.
While AllianzGI does trade multiple assets, the bulk of what it does is still in equities (Rossiter estimates 85%). But it has put greater emphasis on bond trading in a drive to balance its investments. It added an emerging markets debt team in London, and Rossiter’s team trades on its behalf.
Asked about liquidity issues on the fixed income side given the withdrawal of investment banks as bond buyers, Rossiter confirms that Allianz GI has tended to buy more primary issuance than in the past. “I was not into that world [bonds] enough five or 10 years ago to observe the change, but I now see countless bond deals,” he says. “We have to be pretty selective on which ones to go for because the liquidity is not always there in the after-market. Like many of our peers, we buy to hold.”
He points to renminbi-denominated Chinese government bonds as one of the biggest growth areas in regional primary issuance he’s noticed in the past five years.