Despite an exodus of traders, the balance of regulatory and decision-making power remains firmly in the UK capital.
trading head works to complete key technology projects, build a strong desk, and provide access to reliable market information.
MEAG’s head of trading, Elke Wenzler, is no stranger to the desk. After 11 years in portfolio management, she was promoted to head of trading in 2021 and is now spearheading the development of a comprehensive multi-asset trading desk for the firm. She sits down with Best Execution to discuss strategy, technology… and why algorithms, AI and automation are the future.
What has been your career journey, and how did you get to where you are today?
I started my career journey right in the heart of a bustling trading floor even before completing my studies. I then dived headfirst into the fascinating world of rates and FX, and markets have never lost their fascination for me. After graduating with a Masters in Economics, I embarked on a path that took me through sell-side institutions such as Deutsche Bank and Citigroup, working in vibrant trading environments and concentrating on market analysis, trading and structuring interest rates and FX derivatives – looking at the risks and helping clients find optimal solutions for their needs.
In 2007 I took the opportunity to move to the buy-side and started at MEAG, which manages Munich Re investments worldwide and offers its expertise to private and institutional investors. The timing couldn’t have been better as Munich Re is active for clients in 160+ countries and is driving higher diversification in their assets, active now in 33+ currencies and assets in many local markets. Leveraging my prior experiences in FX, interest rate derivatives, and emerging markets, I embarked on a transformative journey within MEAG, harnessing my expertise. In 2017, I took over the leadership of the portfolio management team Emerging Markets and Foreign Exchange, which fit well with my background.
In the rapidly evolving landscape driven by regulation and technological advances, I believe that ensuring optimal access to liquidity requires specialists focused on their strengths in the investment process – alpha generation and portfolio construction on the one hand, and trading and strategy optimisation on the other.
That is why I was so excited when I was asked to build a new multi-asset trading desk in 2021. Building a team and business of this scale within a short timeframe is a rare and exciting challenge. Despite the obstacles presented by the Covid-19 pandemic, we successfully navigated the virtual work environment, and it’s great to have a team of specialists across all assets who are aware and keen to move on with the changing market structure – because that’s how you make sure you don’t miss out on performance.
Reflecting on my career, my drive remains to continue to seek new solutions and innovation and I love being responsible for performance and alpha along the investment chain.
What does your new desk cover, and how is it structured?
My team has four main areas we cover. We trade for MEAG’s asset management business and directly for the Munich Re Group, especially for asset liability management reasons.
We also have responsibility for overlay management, so the passive and active hedging strategies especially, but not exclusively FX and equity and for securities ending.
The team consists of 12 trading and market experts, with strong market experience of more than 15 years on average. As Munich Re’s asset manager, our strongest asset class is fixed income, with specialists in rates, EM and credit – cash and derivatives, followed by equities and, as FX is an asset class in its own right for the group, I have three FX specialists in the team.
What challenges did you see in setting up the new desk?
Within our team, we primarily engage in high-touch trades, focusing less on low-touch activities and what we are working on is a higher level of automisation. With shifting volatility and activity in the current environment, we face the exciting challenge of growing a team of multi-asset specialists. While expertise in each area is essential, it is equally important for all of us to develop proficiencies across assets – which means building a multi-scaling team.
Broadening knowledge applies across the market, of course – we used to have traders who focused exclusively on GBP versus USD and other currencies. However, the changing market landscape requires staff who are willing and able to broaden their knowledge and engage with other asset classes at a high level. In addition, they need to understand the portfolio managers’ objective and be able to comprehend the underlying rationale behind the trades. Anticipating market developments, especially in this volatile and ever-changing environment, is crucial. The aim is to understand investment decisions and reconcile them with current market conditions so that we can provide tailored advice on deal building and market-driven structuring. This requires a particular skill set that goes beyond traditional trading skills.
Personally, I consider myself lucky to be part of this dynamic team where we face these challenges head on. When I started my career, the pace of change in the financial industry was much slower, giving us plenty of time to adapt. In today’s landscape, however, we no longer have the luxury of gradual change. Technology is acting as a catalyst, pushing us forward at a rapid pace and requiring us to adapt quickly to new environments – a challenge in itself. It has become imperative to assemble a team that embraces change, a team that has an unwavering thirst to learn, to expand their knowledge and to continually contribute to innovative solutions.
Over the past two and a half years, the team has demonstrated its exceptional ability to rise to this challenge. They have demonstrated their adaptability, their willingness to learn and their eagerness to stay at the forefront of the industry’s evolution. They understand that being part of the solution means being proactive, embracing change and seeking opportunities for growth and improvement.
Diversity and inclusion is a cause close to your heart. How do you support this within MEAG and how can it contribute to your bottom-line trading performance?
As a company, MEAG places great emphasis on diversity and inclusion, supported by various initiatives and programmes. However, the responsibility for driving this forward in the teams ultimately lies with each individual manager. Our true strength lies in our ability to adapt to new circumstances, as we have emphasised before. A team of excellent traders may be impressive, but without diversity in terms of age, background, gender and language, we miss out on valuable perspectives and may lack the flexibility to respond effectively to different situations.
Introducing new elements and ideas becomes a natural process when the team is diverse. Diversity includes different approaches and problem-solving methods. It is undeniable that managing a broader and more diverse team sometimes means more work for a manager than if everyone worked uniformly – but we have enough independent studies that show it is worth it, as it contributes to our long-term results.
By actively promoting diversity and inclusion, we create an environment that harnesses the unique strengths and ideas of each individual. This enables us to effectively tackle new challenges, as the market environment consistently presents us with evolving obstacles to overcome. Our commitment to embracing diversity allows us to adapt and respond with agility, ensuring that we are well-equipped to navigate the dynamic landscape of the financial industry.
So you have to start right at the hiring process – I always include various people from my team in interviews, because I want to make sure that it’s not only my perspective that comes into play when bringing someone new on board. Embracing student workers as part of our talent search and remaining open to individuals from diverse disciplines further enriches our talent pool, broadening our spectrum of expertise.
By actively promoting diversity and inclusion, we create an environment that harnesses the strengths and ideas of each individual. This enables us to effectively tackle new challenges, as the market environment consistently presents us with evolving obstacles to overcome. Our commitment to embracing diversity allows us to adapt and respond with agility, ensuring that we are well-equipped to navigate the dynamic landscape of the financial industry.
How have you and your team navigated the volatility challenges this year?
In a multi-asset team, you will always have certain asset classes that are prone to volatility, demanding quick decision-making. Fixed income in particular, has been a challenge for market participants, especially at the short end of the curve. This volatility acts as a key driver for risk appetite. Furthermore, the geopolitical landscape adds another layer of complexity, with situations like Turkey requiring close attention due to their fast-changing nature. We do observe more liquidity gaps and periods where liquidity dries up for longer periods of time – in assets where you would not expect it – US treasuries for example.
However, despite these challenges, we have still been able to find liquidity even for very large orders. It is crucial to keep adjusting the trading style and we focus on making access to all available liquidity. And, we have a very close relationship with our counterparties, which is vitally important to have access to experienced traders to provide liquidity and market insights. But we utilise algorithmic trading as an increased proportion where possible, to manage liquidity, particularly but not solely for smaller amounts. We have a range of algorithms at our disposal, allowing us to adapt and modify the trading style based on the market environment. This flexibility enables the traders to optimise their trading strategies and efficiently respond to changing conditions. Additionally, we benefit from our hubs in New York and Hong Kong, further enhancing our capabilities to manage liquidity effectively.
Through the combination of expert traders, algorithmic trading, global coverage, and robust support systems, we are well-positioned to address liquidity challenges and adapt to the ever-changing market conditions.
What kind of new technology and/or new tools are helping you at the coalface of trading?
We are running a few technology projects currently. We use AI a lot now, and it’s a growing part of our trading style. For now we seek solutions that support the trader, to increase the level of straight-through processing, to be more efficient and to support best execution.
We are in the process of implementing an execution management system (EMS) to support traders in cash and derivatives, including options trading. With a multi-asset trading approach, it is critical to have a centralised cockpit that gives traders direct access to the information they need to execute their trades efficiently.
As access to data is better than ever, the challenge is to extract the right information at the right time. Achieving interoperability between our order management system (OMS), disparate self-developed tools, fintech solutions and different vendors and brokers is key. To manage this complexity and ensure the timely availability of information, the adopting of an EMS is part of our strategy, building on an existing solution and where needed we will customise it to consolidate all key data into a single cockpit accessible to all traders.
How are you finding new ways of utilising and processing data in order to improve execution?
We gather our own trading data, including volumes and the number of trades, and we employ transaction cost analysis.
Maintaining a transparent view of our trades and trading practices is crucial, and we continuously explore how to leverage this information, particularly in pre-trade analysis. However, this task is not as straightforward as it may seem. For instance, in the FX domain alone, we utilise different TCA approaches to conduct in-depth assessments of our trading activities. Yet, it is essential to ensure the accuracy of the data, as even minor errors in timestamps can lead to incorrect conclusions.
The principle of “garbage in, garbage out” applies, and given the volume of data we generate across all our trades, we rely on skilled individuals to validate its accuracy. This ensures that we can achieve optimal trades with the best spreads. It requires daily, ongoing efforts, and we consistently require additional resources to handle the workload.
We maintain close collaboration with our data team and technology providers, ensuring that they align with our specific requirements. During slow market conditions, there is more time to seek information, but in times of high volatility, it is crucial to have confidence in accessing the necessary data promptly. Each team member bears responsibility for this, and we are fortunate to have a talented pool of young professionals who bring valuable expertise and contribute to the development of exceptional in-house tools.
What are the biggest challenges you’re facing this year?
The implementation of regulatory changes is always a challenge, and T+1 settlement might be one for the market in 2024. However, I am confident in our preparedness, which will likely give us a significant advantage. Nevertheless, the preparation process in the market will be demanding, requiring us to consider operational hours, process adaptations, and increased availability. We are actively assessing what actions are necessary in trading and operations to meet the deadline, and how technology can assist in managing specific areas. Firms that still rely on manual or bilateral processes may face disadvantages in this regard, but our setup is well-equipped and ready.
Market wise I expect that volatility and liquidity gaps continue to be ongoing concerns – driven by global economic conditions, policy changes of the central banks and geopolitical events. However, our preparedness positions us advantageously in addressing these challenges. While we acknowledge the possibility of spread costs, leveraging our data ensures that the strategies implemented align with the investment decision-maker’s objectives, significantly enhancing team performance.
What’s on your priority list for 2023?
Firstly, our priority is the successful completion of crucial technology projects, particularly the implementation of our new execution management system. This project will enhance our operational efficiency and effectiveness in trading.
Secondly, we remain dedicated to building and strengthening our trading desk. We are focused on optimising its structure and processes to ensure maximum efficiency and productivity. We recognise that there are several steps involved in this ongoing development process.
Lastly, we are actively addressing the issue of supporting well-informed decisions based on the best available market insights.
By completing key technology projects, building a strong trading desk, and providing access to reliable market information, we aim to optimise our performance and deliver superior outcomes for our clients and stakeholders.
All these initiatives and efforts are undertaken to ensure that we achieve the best possible results.
Elke Wenzler is head of multi-asset trading at MEAG, the asset manager of Munich Re and ERGO with €310bn AuM. Since 2021, she has been responsible for setting up and ensuring the scalability of the Group’s multi-asset trading. Together with her team, she is responsible for all trading activities in equities, bonds, currencies – cash and derivatives – overlay management and securities lending for MR Group’s assets. She was previously in portfolio management at MEAG, and has been head of the emerging markets and FX team since 2017. Elke holds a degree in economics and has more than 20 years of capital markets experience. Prior to joining MEAG in 2007, she held various sell-side positions within the global markets divisions.
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