Rosenblatt Integrated Transaction Analytics

Case Study

Client:

A rapidly growing, fundamental research-based investment manager primarily focused on mid-cap and small-cap strategies. To accumulate or exit a position takes several days to minimize market impact.

Project:

To work with the Director of Trading to develop a decision-tree, process, and program for incorporation into a new order management system and assist with further improving best execution, broker allocation, and integration of trading and portfolio management. In addition, to work with the executive team and portfolio managers to provide a view about the capacity of the fund to take in more assets without adversely affecting performance.

Solution:

An analysis of over 27,000 trades was undertaken utilizing RITA to determine the cost of trading, typical trade package characteristics, trading alpha, market impact, and slippage in order to develop, for immediate inclusion into the order management system as user-defined fields, a market impact estimate, urgency factor, rank, and suggested tactic and trading venue. Quantitative factors included the pre-trade market impact estimate, %ADV, intra-day volatility, and rank. Qualitative factors included portfolio manager’s urgency and instructions, relevant news, and indications of interest. This methodology will reduce trading costs and errors, and greatly improve the traders’ productivity, leveraging their time and skill-set to focus on more difficult securities, as well as other planned products such as international and large-cap strategies, further increasing asset growth with reduced execution drag.

With respect to our capacity analysis, we concluded that because 80% of the portfolio could still be traded in approximately 10 days or less of low-impact trading (25% or less of the days volume) and the list of roughly 25-30 concentrated positions was manageable in our view, we were comfortable with their SMID strategy taking in another $1-1.5 billion is assets before closing. With the firm suggesting this to investors based on our advice, a full $1 billion of inflows was received the next month and the client soft closed the strategy.

It is worth noting that there were no explicit charges or consulting fees charged for these services. It was merely included as part of the deep relationship we have with our customers, consistent with our view of what it truly means to be an agent.