BCI Implements Innovative Centralized Trading Platform

BCI recently published a white paper on modernizing trading to help establish gold standard at large institutional asset managers:

Victoria, BC – British Columbia Investment Management Corporation (BCI) has released an industry-first white paper detailing our innovative centralized trading framework which provides clients with greater portfolio returns, lower fees, and allows for improved risk management.

“As BCI transitioned successfully to an active in-house global asset manager, we built a value-added, modern centralized trading framework,” said Daniel Garant, executive vice president & global head, public markets. “Our framework was designed with a cross-asset mindset to enhance portfolio returns, lower costs and better manage risk. It was imperative that our platform deliver best trade execution, as well as have strong governance to help influence ESG practices with our global financial partners, in addition to streamlining processes, efficiencies, and scalability for our continued growth.”

Our centralized, end-to-end trading approach ensures connectivity at the highest levels and enables one cross-asset desk to execute for the entire corporation. Having a complete picture of trading activities, fees, and data allows for better aggregated pricing on total transactions with partners, and further allows for better decision making grounded in centralized data sources.

“We are pleased to be working closely with BCI in the provision of front- to back-office capabilities that help facilitate and accelerate BCI’s ambitions to generate enhanced performance and greater cost efficiencies for their clients. Centralized trading exemplifies their commitment to achieving these goals, and we are excited to continue solutioning for their needs as they continue to grow.” said Dane Fannin, global head of securities finance at Northern Trust, a leading provider of asset servicing to institutional investors.

Promoting collaboration in what is typically a siloed function at many large institutional asset managers, BCI’s centralized trading framework also shifts the role of the trader from operations to advisor, allowing trading professionals to add significant value to the investment process.

“Joining BCI at a time when the corporation transitioned to active management allowed me to lead a trading team implementing processes and frameworks from scratch. There has long been an established, back, middle and front office approach to trading, coming in to create something new without legacy frameworks to constrain us was very exciting,” said Samir Dhrolia, senior managing director, global derivatives, trading and indexing portfolio management. “The executive management team at BCI empowered us to deliver a world-class solution and we’ve been able to draw top talent from a very competitive market to Victoria to work on this.”

As outlined in our Centralized Trading White Paper, the key benefits of a centralized trading framework include:

  • Cross-asset view that enhances portfolio returns, reduces costs and allows for better risk management
  • A central voice facilitated via BCI’s One Wallet platform, a relationship management tool that manages a total view of payments across BCI, negotiating with external parties for the best possible results for clients on commissions, deal flows and third-party services. This is increasingly important as BCI’s operations spans the globe with teams in Victoria, Vancouver, New York, and this year, London, UK
  • Fosters a performance-focused team, and offers an environment where employees collaborate across the portfolio management, cross asset risk and liquidity functions
  • Streamlines processes, effectiveness, and scalability for continued growth
  • Optimizes management oversight, and strengthens legal, compliance and operational controls thus reducing a variety of operational and investment risks

Download the Centralized Trading White Paper.

About BCI
British Columbia Investment Management Corporation (BCI) is amongst the largest institutional investors in Canada with $211.1 billion under management, as of March 31, 2022. Based in Victoria, British Columbia, offices in Vancouver, New York City, and London, U.K. BCI is invested in: fixed income and private debt; public and private equity; infrastructure and renewable resources; as well as real estate equity and real estate debt through our independently operated platform company QuadReal Property Group. With our global outlook, we seek investment opportunities that convert savings into productive capital that will meet our clients’ risk and return requirements over time. This compels us to integrate long-term ESG matters into all investment decisions and activities. BCI’s clients include pension plans representing over 715,000 plan members, insurance funds providing more than three million Autoplan insurance policies annually, benefits coverage to more than two million workers and 225,000 companies, and special purpose funds within B.C.’s public sector. Founded in 1999, BCI is a statutory corporation created by the Public Sector Pension Plans Act. For more information, visit our website BCI.ca or follow us on LinkedIn.

I highly recommend my readers take the time to read this centralized trading white paper here, it is extremely well written and very informative.

BCI is releasing it to share its knowledge and experience with other institutional investors (not just pensions) and I really think they did a good job here.

I had a chance to discuss this paper in the summer with Samir Dhrolia, senior managing director, global derivatives, trading and indexing portfolio management at BCI.

Samir is a very nice and sharp guy, I told him to go to conferences first, get some feedback from peers and then publish findings in places like Institutional Investor.

Not surprisingly, very few if any publications have covered this topic but when you're managing assets internally, across many products and geographies, you need a centralized trading system to aggregate risks and lower fees with counterparties.

I'm pretty sure big global macro/ multi-strategy hedge funds have very sophisticated centralized trading systems because every basis point counts to their bottom line.

What I find interesting is BCI is sharing its finding with the world and this paper is well worth reading.

The white paper explores the benefits and drawbacks of centralized trading for institutional investors. We offer decision criteria for asset management firms who are considering or on their way to centralized dealings, to assess their unique circumstances, costs, and other constraints before implementing a centralized framework. We develop best practices to implement centralized dealings, including good governance, regulatory requirements, defining order types and cross-asset best execution, working from home and technology prerequisites. The analysis draws on the existing body of research for trading desk structures, industry trends and best practices, scenario analysis to estimate the benefits net of costs, and case studies from global asset management firms.

It is beyond the scope of this post to cover this material in detail which is why you should read the white paper but I did note some things like this on page 47:

And this:

Samir and those who helped him put this paper together should be applauded for their work.

Of course, the skeptic in me always says a system -- any system -- is only as good as the people using it. BCI needs to attract brains to Victoria and other global offices to make all their internal management strategies across public and private markets work.

Let me also share some operational risk disasters that used to happen at Canada's large pension funds back in the day (not any longer):

  • Currency traders at OTPP trading their own book before placing orders for the organization
  • Stock traders at the Caisse placing orders in their own book before doing so for CDPQ
  • Traders at CDPQ and elsewhere getting wined and dined, taken out to strip clubs, by brokers doing business with them

And on and on, those were the "wild west days" and while I'm sure some of this nonsense still goes on, it's really frowned upon now and not tolerated, it will cost you your job. Period.

Hell, I remember back in the days at the National Bank Financial, the Caisse would call "Gary" the alcoholic head trader, he would get a big order and some traders on the floor trading stocks at the time would try to front-run the big trade and Gary would scream: "Who the f*ck is trying to front-run me, I'll rip their balls off!".

That was in 1999-2000, at the height of the tech bubble, it was pure madness watching tech stocks go up 20% to 30% each and every day, just nuts!

The Caisse decided to increase its stake in Nortel when the stock got hit, I was part of that executive meeting and remember Jean-Claude Scaire, Michel Nadeau listening to Pierre Lussier and his (primitive) technical analysis debate Adel Sarwat who was skeptical on Nortel (I've got to write a book!).

I also remember during the 2008 GFC, the Caisse was unloading shares of Teck Resources and stock hit $1 and Letko Brosseau was on the other side of that trade scooping them up on the cheap!

I still suspect currency trading is the Wild West where banks rip off mid-sized corporate customers they provide loan facilities to. There are almost no regulations governing currency trading, it's pathetic (once in a while big banks get caught, pay a hefty fee and go right back at ripping customers off).

The same goes with derivatives. Anyone remember Frank Partnoy's classic book, Fiasco: The Inside Story of a Wall Street Trader.

And the sad part of it is front-running is still going on nowadays but it's done with coders coding algorithmic codes to rip institutional and retail clients off and it is happening each and every day across many public markets.

Nobody talks about it publicly but we all know the big hedge funds engaged in this nonsense (their lawyers read my blog religiously, worried to death I might say something damning­čśü).

Alright, let me end with some good news, earlier today BCI appointed Jennifer Coulson as Global Head of ESG:

March 1, 2023

British Columbia Investment Management Corporation (BCI) is pleased to announce the appointment of Jennifer Coulson as our first global head of ESG. This newly created role reflects our corporate-wide commitment to sustainable investing and will further strengthen oversight and integration of our ESG and climate-related ambitions.

As global head, Jennifer is responsible for all ESG strategies and programs at the total portfolio level. She will continue to evolve our approach in line with the fast-changing ESG landscape and lead our work supporting the global goal of achieving net-zero emissions by 2050.

“BCI continues to look to the future to meet our clients’ long-term financial goals. Appointing a global head of ESG allows us to expand our ability to manage risks and capture opportunities,” says Gordon J. Fyfe, BCI’s chief executive officer and chief investment officer. “Since joining BCI in 2012, Jennifer has built a world-class public markets ESG team focused on active ownership and laid the foundation for our corporate-wide ESG governance structures and strategies. I look forward to her continued leadership at BCI.”

As a long-term investor, BCI continues to expand its ESG strategies as well as increase capacity across all teams. This centralized ESG leadership role will increase consistency and coordination across the corporation, while allowing for ESG professionals to be embedded across their respective business, allowing flexibility for tailored approaches within each asset class.

“BCI has actively considered ESG and climate change for more than two decades. As we grow our global presence and our ESG talent, having a unified ESG approach is increasingly important,” says Jennifer Coulson, newly appointed senior managing director & global head, ESG. “There is a tremendous opportunity to build on our leading ESG practices and work across teams to create value in our portfolio and for our clients.”

Jennifer holds a degree in environment and resource management from Western University and a masters in environmental studies from York University. She has received the corporate director designation (ICD.D) from the Institute of Corporate Directors; chairs the 30% Club Canada investor group; serves on the Government of Canada’s Sustainable Finance Action Council; sits on the investment advisory committee for the University of Victoria Student Investment Fund; and is a board member for the SDI Asset Owner Platform. Jennifer has been recognized as one of British Columbia’s most influential women in finance by BC Business Magazine.

Learn more about BCI’s approach to ESG and climate action at BCI.ca/ESG

I congratulated Jennifer on LinkedIn on this well deserved appointment, she really worked very hard to get here and deserves to be recognized for her hard work:

It isn't lost on me that we entered Women's History Month and the timing of this announcement is great.

I remember Gordon Fyfe telling me when he first arrived at BCI, the offices were cramped and he saw a shy lady working in a cubicle near his office.

Well look where she is now, kudos to her and her team as they have huge responsibilities now to help internal teams implement the organization's ESG strategy across public AND private markets.

Well done, Jennifer, as I've said, I've tracked your insights and work and think highly of you and know you and your team will continue delivering outstanding insights to BCI and to the pension community at large.

Alright, that's a wrap from me.

Below, Blackstone defaulted on a $562 million bond backed by a portfolio of offices and stores owned by Sponda Oy, a Finnish landlord it acquired in 2018. John Gittelsohn has more on "Bloomberg Markets: The Close."

Take the time to watch this, as the cost of floating rate debt skyrockets, big funds are defaulting to renegotiate their loans. There will be winners and losers but I'm getting nervous about the private debt market, very nervous.

And David Rosenberg of Rosenberg Research digs in on the impact of rising rates. With CNBC's Melissa Lee and the Fast Money traders, Karen Finerman, Dan Nathan, Guy Adami and Jeff Mills.

Listen carefully to Rosie, he raises excellent points except I'm more worried about stagflation (rising wages and rising unemployment which seems strange but watch it unfold).