FX profile: Morgan Stanley’s Matrix hits the mark, as it eyes Goldman FX spot
Despite 2011 being a poor year for the hedge fund community, Morgan Stanley’s co-heads of FX Stephen Glynn and Senad Prusac are upbeat about their division’s performance during the past 12 months.
The pair, speaking from the firm’s New York office earlier this month, said they are confident the bank’s increased trading volumes will translate into increased market share – the reward of several years of investment and development in its single-dealer platform (SDP) Matrix, and the overall e-commerce strategy, which they say has begun to deliver. “We feel the volume expansion last year and the market share pick-up is a reflection of how our business has been re-oriented,” says Glynn.
That should consolidate Morgan Stanley’s standing in the annual Euromoney FX survey, where it ranked 10TH overall last year – with an overall market share of 3.64% – and where they will look to overtake their perennially more successful “big brother” rival Goldman Sachs, which finished 2010 in ninth spot, with a market share of 4.13%.
The bank says it has seen volumes and revenues rise strongly across its e-commerce platform over the past year. In EuromoneyFXNews’s inaugural e-trading survey published in January, Matrix ranked as the sixth-most preferred SDP, behind Goldman’s REDI trader in fifth.
“Our volumes [in e-trading] have increased in multiples rather than percentages,” says Prusac.
However, Glynn stresses that boosting volumes in electronic spot is only part of the story. “We continue to develop capabilities in the traditional e-commerce spot world, but also we’re very focused on e-commerce opportunities in options, in NDFs and in forwards as well,” he says.
“Matrix also offers a lot of content to our client base, as well as being an execution platform. So it’s core to our strategy of building a much bigger electronic footprint.”
Part of that content, outside just purely execution, has been aimed at trying to set itself apart from its omnipresent SDP rivals. During the past two years, the firm has invested a huge amount of time and resources into its quantitative solutions and innovations group.
The service provides quantitative analysis on transaction cost analysis and techniques for more effective electronic execution. “They are one of the reasons we are getting traction with real money accounts and also with hedge funds,” says Glynn.
Thus, Morgan Stanley says it continues to make progress in the hedge fund sector, in which it jumped five places to rank third in last year’s Euromoney FX Poll, but in relative positioning terms it remains at its weakest with the over-$250 billion accounts, fifth, and the $100 billion-to-$250 billion accounts, in eighth spot. In real money, it has some lost ground to make up, after falling two places to 10th as it gave up 1.5% in market share.
Real money: Top 5 vs Morgan Stanley (market share)
|Source: Euromoney Market Data
The bank says although publically available data shows that hedge funds had an extremely difficult year amid heightened market instability, it did not stop them trading FX.
Indeed, FX volumes were lifted as funds used the liquidity of the FX market as a proxy to hedge positions in other less-liquid markets. HedgeFund Intelligence’s Absolute Return Macro Index returned 1.07%, against an historical annualised return of 10.26%.
The hedge fund sector has historically been an area of strength for Morgan Stanley, a fact that Glynn puts down to the bank’s focus on its research capabilities.
“In the uncertain markets we have seen, the ability to offer clients insight into the market is of significantly more value than simply a pure execution capability,” he says. “Increasingly, hedge fund clients, in particular, and also real money, appreciate that added level of insight. That’s what’s allowed us to improve relative to our peers.”
Glynn cites the hiring of Hans Redeker, who joined the bank from BNP Paribas in May 2011 as head of global FX strategy, as a reflection of the bank’s commitment to its research capabilities.
“He’s a big name in the FX market,” says Glynn. “He’s been one of the leading currency strategists for over 20 years. It’s something that is expected of Morgan Stanley – we have to be at the leading edge of research. Hans is that in the currency market.”
Hedge funds: Top 5 (market share)
|Source: Euromoney Market Data
While Glynn and Prusac maintain that volumes and profitability are on the up, the bank hasn’t been shy to rationalize its headcount. It announced plans to shed 1,600 jobs across all its businesses in December as it readjusts its headcount in response to new capital requirements, trading regulations and a slowdown in the global economy. Despite the relatively strong performance of the sector, Morgan Stanley’s FX division has not been unaffected, with the bank shedding FX trading and sales jobs in London and New York, with as many as 10 people leaving the firm.
The most notable departure was that of Stephen Mettler, who retired in January after 14 years with the firm, having most recently been global head of macro, as well as representing the firm on the FX committee of the Federal Reserve Bank of New York. He’d previously held roles as global head of sales and FX options.
Other notable departures included Kirsty Garrett from FX sales in London, and Shaun Crawford, a Swiss franc trader in New York. In all, the firm shed close to 10% of its headcount. Morgan Stanley declined to be specific.
The bank insists, however, that it has seen no impact on its FX business as a result of the departures, maintaining it is part of a “natural process” and the firm will continue to look for strategic hires where it sees opportunities, but equally will continue to manage its headcount to make sure its business is kept lean and mean.
“We’ve always ran efficient and nimble businesses, while maintaining the capability to scale up or down relatively quickly as the conditions require,” says Prusac. “So I don’t think anything changes on that front. We review the sizes of our businesses regularly and we adjust.”
That adjustment is likely to see Morgan Stanley move ever more into emerging markets. It believes there is a secular trend that will see more emerging markets business being transacted in all product areas, with FX leading the way.
Last year, the bank expanded its trading capabilities into Mexico, Peru, Turkey and Singapore. It already has trading hubs in the major Bric countries and Korea, and says it continues to look for opportunities to expand.
Glynn, who now bases himself out of Hong Kong, says the traditional separation of G10 versus EM FX has broken down.
“We feel we are extremely well-positioned for that with our current combined FX and EM set-up,” he says. “So we are going to continue to direct more and more resources towards the EM capabilities of the firm.”
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