Australian asset managers who had focused on local stocks now have a much wider lens.
This article was first published as Beyond Liquidity on Markets Media. Beyond Liquidity is produced in collaboration with Liquidnet.
It’s 5:30 pm in Sydney when we begin to hear bottles popping and glasses clinking in the Liquidnet offices. It’s 15 June 2023 and the firm celebrates its 15th year anniversary in Australia. It’s on this occasion that head of Liquidnet Australia, Kate Weidenhofer, takes stock of the past decade and a half.
Award-winner Weidenhofer joined Liquidnet 15 years ago in a trade support role to help launch the office. She has since risen through the ranks as the firm expanded and became head of Liquidnet Australia in 2018.
“When Liquidnet entered the Australian market in 2008, it was an instant success because we solved a real challenge. We solved for a lack of efficiency, larger trading spreads and the inability to trade in large scale anonymously. There was a real disconnect between what the buy side had available and what they optimally wanted to achieve.” She said. “The buy side really liked the Liquidnet brand which was associated with innovation and a client-centric service model. It’s really exciting to see how far we’ve come and how the business continues to grow.”
When Liquidnet launched in Australia it was already live in Europe, the US and Hong Kong, and over 50 Members in Australia were using the dark pool in other regions. Weidenhofer said Liquidnet’s global reach and the unique, off-shore liquidity coming into the pool was an attraction for Australian firms as it was harder for them to access that liquidity.
15 years later, Australian asset managers have evolved in the way they trade. “They used to focus more on local stocks,” Weidenhofer said. “Now it’s a much wider lens. It is APAC and it is global.”
She argued that this played to Liquidnet’s strengths as the platform is live in 49 markets globally. The firm has live trading desks across all the major hubs so it can operate a 24/7 ‘follow the sun’ model.
“Liquidnet has shifted from merely being an ATS to become an agency broker and this is what allows us to service Australian fund managers who started to invest offshore,” she added. “They already knew us and they could easily integrate Liquidnet into their global workflow.”
Another change over the past 15 years has been the increase in automation, with Members becoming increasingly comfortable with fully automating the negotiation process. In addition, the Australian equity market has become more fragmented. As a result, Liquidnet’s liquidity pool has increased despite the drop in equity markets and turnover. The liquidity pool grew by 4% in 1Q 2023 vs 2022 which compares to a drop in equity market turnover of 26.4% over the same period, according to Weidenhofer.
“As dark market experts, we cover the majority of asset managers in Australia and we are the one point of entry for a lot of our clients,” she said. “Our ability to evolve our coverage model to offer an element of human interaction combined with technology of automated workflow makes us a consistent source for stitching together fragmented liquidity.”
In March this year, BIDS Trading, Cboe’s block trading ATS, launched in Australia alongside ASX, the national exchange, bringing fragmentation to the market. As a result, conditional orders, which have proliferated in the US and European markets, are expected to grow in APAC where they have been largely absent.
“As a client-driven franchise, we continue to shape our offering to help our clients navigate the evolving landscape. With increased fragmentation, our focus has been on restitching liquidity for our Members, giving them access to both lit and dark liquidity,” explains Weidenhofer.
In another 15 years, Weidenhofer would like Liquidnet to be the essential liquidity aggregator for both the buy and sell side as fragmentation is likely to continue. The firm will continue to invest in the conditional market, liquidity seeking algorithms and liquidity building tools such as target invitations and analytics.
She said: “Our purpose has always aligned with the aspirations of our clients, and that’s to make sourcing liquidity more efficient. As the trading landscape continues to evolve in Australia, we will ensure we grow alongside our Members.”
