AllianceBernstein, a powerhouse in fixed-income investing, is seeking to profit from the expertise and size of its trading desk by selling its services to other buy-side firms.
Through a new outsourcing service, the $600 billion asset manager will execute other buy-side firms’ bond trades, said James Switzer, its global head of fixed-income trading. It’s already started buying and selling derivatives for an insurance client through its desk in New York.
AllianceBernstein will compete with other large Wall Street firms that also offer outsourced trading to money managers, who are looking for ways to cut costs as they face pressure to decrease fees. Much of that entails eliminating jobs in non-client facing roles such as accounting and human resources, while other functions including trading are increasingly being outsourced to firms like AllianceBernstein that have invested in the technology to handle developments in market structure.
“It’s hard for asset managers to innovate and create new technology while downsizing,” Switzer said. “You either build it or buy it — either way, you’re spending money and we’ve already got the systems in place.”
Equity markets have largely outpaced their fixed-income counterparts in digitizing their operations, including outsourced trading. It’s also mainly been a sell-side effort so far, with firms like Cantor Fitzgerald, Wells Fargo and Jefferies Financial leading the charge. In Europe, Amundi Services within Amundi Asset Management and BNP Paribas Securities Services offer fixed-income trading to external clients, but not yet in the U.S.
Nearly all of the fixed-income funds held short term debt.
AllianceBernstein has introduced a robot to execute some corporate-bond trades directly with bots at dealer counterparties. The robot is designed to save traders time and beat competitors, a meaningful edge in a secondary market starved of liquidity. It’s also one of the few initial firms selected to beta test a new technology to streamline the new issue process. The firm gets top-tier pricing in trading thanks to its size and technological know-how and it’s prepared to pass on that advantage to clients through outsourcing, Switzer said.
The service is still in its early days as AllianceBernstein looks to add clients, and more traders internally to accommodate them, Switzer said. Prospective users include smaller asset managers, hedge funds and larger firms with costly headcount to cut. Insurance companies and pension funds also tend to be buy-and-hold investors with fewer needs for internal trading desks.
