Bill Stephenson spent 20 years at Franklin Templeton Investments, ultimately becoming Global Head of Trading and one of the most recognizable figures in the buy-side trading community. After leaving the firm in 2017, he’s now leading the AIR Summit, a buy-side only event focused on showcasing the companies with the most innovative new solutions to help drive alpha.
Traders Magazine editor John D’Antona recently caught up with Stephenson to talk about his new initiative, buy side technology trends, recent market structure developments, and more.
You left Franklin Templeton last fall after two decades. What are you up to now?
It has been a year since I left Franklin Templeton as the Global Head of Trading. While I spent my entire career on a trading desk, the last thing I wanted to do was lead another trading team. Not because I don’t love the trading desk culture, camaraderie and the opportunity to directly add alpha to client portfolios, but because I really wanted to find new opportunities and challenges in our industry. I initially consulted for a few different fintech companies, one of which, RobustWealth, was acquired by Principal Financial in July and another was FundSeeder, which previously presented at the AIR Summit.
Bill Stephenson, AIR
The AIR Summit -- short for Alpha Innovation Required -- is an event I started in 2013 while at Franklin Templeton, which turned into a very valuable forum for buy-side related innovation. While I didn’t initially plan on continuing the event outside of Franklin Templeton, the growing list of requests from past attendees and presenters pushed me to reconsider. So, I teamed up with Morgan Dunbar earlier this year and we started planning the launch of AIR 4.0, which will be my fourth year hosting the event.
Aside from AIR, I was also thinking about some of my most pressing challenges as the head of a global trading team and how I might be able to help automate, streamline or improve upon those in a more scalable or user-friendly way. One such area was around order routing, performance analytics and best execution processes that impact both the buy-side and sell-side. As part of that thinking, I teamed up with Dave Lauer to work with the buy-side to create some new standards that can be leveraged across the industry. This would include a deep-dive exercise with some broker dealers who are looking to differentiate and provide new levels of transparency into their business. We are calling this “NextEx” – short for “next execution” – because it will help both sides of the Street anticipate potential challenges to our industry and to consider adopting future best practices now. I expect to have information on this in the near future.
Sounds interesting on both fronts. Can you share more about the AIR Summit?
Yes, we’re really excited about the event, which is happening on September 5th and 6th in New York. What makes the event unique compared to other fintech events is that it is very focused on what I like to call “alphatech”. In our view, Alphatech is technology that helps a trader, analyst, portfolio manager or risk manager make a better or faster decision in the investment process – with the potential to add alpha. The AIR Summit participants will include those roles, but also data scientists, technologist and other senior buy-side executives who are looking to challenge existing processes. Basically, the format is quite simple but effective. We select 20 companies to present in ten-minute intervals, and during that time they will discuss why their innovation matters, why they are different, and a real use case with an investment manager. At the conclusion of these presentations, each attendee will choose their top five companies where they will participate in collaborative roundtables with other attendees, in 45-minute sessions. That way each attendee sees each of their top five companies in a more intimate setting. Additionally, we will have some past presenting companies on hand for roundtable updates on the second day.
What companies do you have signed up to participate at this year’s event?
We have an exciting lineup curated for 2018. I can’t tell you the names because part of the value of being invited to the event is the big revelation on September 5th. Morgan and I spent a lot of time trying to understand who the best companies are and how they really can add alpha to the investment process. We will certainly have some companies that are in the alternative data space which has mushroomed into a huge category of 1,700+ providers. There will also be some platform providers that allow for the aggregation of data, research, or other investment related information. One of the potentially most valuable areas is around automation and process improvement where we will have a great line up of companies that can help streamline alpha generative workflows.
Clearly you have a lot of passion for how tech is shaping the investment management process. Did you consider going into fintech instead of the AIR Summit?
As I mentioned, I’ve consulted with a few fintech companies and did spend a considerable amount of time working with them to refine their strategy, raise capital and engage with potential customers. While I did consider focusing on one initiative, I ultimately decided the AIR Summit will help me expand the opportunity by being able to engage with more companies and ideas to build out this broader ecosystem that can be more valuable to fintech companies and the industry. I believe the AIR Summit can develop into a diverse community of fintech companies, asset managers, investment banks and other related service companies that will be able to streamline the process of sourcing investment or operational alpha. There is a huge need for expertise in this area and think that a community built around the AIR Summit could be a significant source of value and an interesting use of my time compared to focusing on one company alone.
Obviously technology has had a profound impact on the role of the buy-side trader. What do you see as driving the biggest changes today?
I’ve spent most of my career trying to figure out how to better leverage technology into our trading processes and how to efficiently tie that into both upstream and downstream decision making. Add on top of that, market structure complications, regulatory changes, client mandates and continued cost pressures on the industry have created a compilation of challenges that all buy-side trading desks are dealing with in real-time.
I think the most important effort a head trader can support would be the drive towards automation. Not only are there very sophisticated and quantitative technologies that can make better and faster decisions for traders, but their adoption means traders can work their way up the value chain more easily. For instance, as larger and larger orders can be systematically routed based on pre-defined rules that can improve via a machine learning process, the more a trader can help a portfolio manager, analyst or risk manager identify and capitalize on market opportunities. With more automation, a trader can increase their value in the investment process.
The challenges will be the costs to invest in people and technology when active management is somewhat under assault. I am a big believer in active decision making across the investment process and am sure it will rebound as many of the firms that attend the AIR Summit become more and more proactive in making technology a strategic driver of their business. To me, I think continued automation at all levels of the investment process will dominate the changes we see in our industry and the increased need to be super scalable and efficient will drive every investment manager to acquire the talent and technology to effectively compete.
Market structure, as always, is a major topic of conversation in the industry. The proposed Access Fee pilot is probably the biggest one today. Do you have an opinion on it? Several large managers have come out in favor of it, but others in the industry think the ‘rebate debate’ is solvable by the buy side simply demanding greater routing transparency from their brokers.
Transparency is part of the issue, but transparency alone will not reduce conflicts of interest that can plague routing decisions, and ultimately performance. For many years, head traders and leaders in roles like my previous position have pushed for more and more transparency. In most cases we received it, but that transparency can’t always be validated or confirmed – at least not easily. This is where the NextEx initiative I am working on can be a significant value-add to the buy side and a differentiator for the sell side. Validating a broker’s practices, performance, routing logic, interaction with exchanges, ATSs or CRB is something that no one buy-side firm can do alone, especially in the case of global managers where they have hundreds of brokers.
With that said, I am in favor of the access fee pilot and think it will be an interesting exercise that will provide information about how to improve pricing structures and routing decisions. In the meantime, I think exchange fees and rebates should be passed back to investors and unbundled from the commission costs. While this might be a technological challenge for some firms, I think this would help take the cost side of the equation off the broker so that potential conflicts can be reduced.
Last question – what do you miss the most about being on the trading desk?
Well, I haven’t actively executed on a trading desk since 2005, so it’s been a few years. But the reason I become a trader in the first place was because of the dynamic nature and excitement of trying to beat the market on any given day. As I gradually moved off the trading desk, my goal was to help our entire team systematically beat the market on a consistent basis through a best execution process that included a sound philosophy supported by technology and analytics. Probably what I miss most is that daily, weekly, monthly fight to add value for clients through that evolving process.
As traders evolve with technology, there will always be a huge opportunity to add “new alpha” to the investment process. I always felt that a trader’s role was the most exciting and dynamic of all roles within the investment process. As market structures continue to evolve because of technology, the opportunity to differentiate will always be available to those who take the initiative.
