Investment management at MAN Group

The Gateway speaks to Murray Steel, Global Head of Trading at AHL, Man Group's systematic investment management division, to hear about their alternative approach

Could you outline your career to date?

After doing an undergraduate degree in IT and a masters in investment analysis, I joined a major investment bank's foreign exchange trading desk. I stayed there for five years, and then joined AHL in 1999. Now, 12 years later, I run AHL's trading desks, based in London and Hong Kong.

How would you sum up how AHL operates?

We manage our investors' money using quantitative techniques. Rather than using fund managers, our trading decisions are generated by our statistical models. These continuously analyse market trends in over 200 global markets. We trade in a broad range of sectors, including currencies, bonds, stocks, commodities, and interest rates. We execute over 2000 trades a day across 200 different markets globally, trading from the open of the New Zealand markets until the close in Chicago. Essentially, what we do is based on the very simple idea that if you identify patterns in the market, follow them, and manage your money carefully, you will profit.

Our models are developed by our research teams in London and at our research facility in Oxford - our Man Research Laboratory is based there, and works alongside the more academically-focused Oxford-Man Institute of Quantitative Finance. AHL is the only investment manager to have its own laboratory embedded within the University of Oxford in this way.

What kind of assets do you trade in most?

We predominantly trade futures contracts, that is, standard exchanged-traded instruments which allow us to buy (�go long") or sell (�go short") to get exposure to a particular market. Futures are ideal for funds like ours which execute a large number of trades because they're liquid, meaning that it's easy to buy and sell them quickly, and are also relatively cheap to access. Futures markets are also a very safe way of trading because they offer transparency for investors, and use clearing houses to reduce counterparty risk.

How are your trading systems maintained and developed to ensure AHL's continued success?

We're constantly developing our models, but we don't want to adjust today's models on the basis of yesterday's marketplace. Over-adjusting your models is a quick way to go out of business in this industry. What's needed, and what we have, are models that are robustly researched, so that they will perform in a variety of conditions over a long term period.

We're always looking as far afield as we can, for example, to some of the more complicated futures markets or to the emerging market economies - AHL was one of the first funds of its kind to trade in Brazil, Korea and Taiwan. Doing so allows us to achieve much better diversification than most of our competitors.

We're also at the forefront of execution research. Just because a model picks out a trend, it doesn't mean that it's necessarily going to make money. To make sure it does, we need to find the most effective way of executing our trades.

What are the advantages of basing trading decisions on statistical models rather than individual judgement?

A human is prone to making decisions based on their psychological makeup rather than for objective reasons, whereas our models behave mathematically and do exactly as they're programmed, regardless of external factors. For example, when central banks around the world started lowering interest rates in 2008, a lot of human traders couldn't believe it was possible for them to go below four per cent, then three per cent, then two per cent and failed to react effectively, but our investors benefitted because our models continued to follow these trends.

In addition, we're free of key-man risk, that is, as a team we're not dependent on one star performer to manage our clients' money.

What are the risks of this kind of trading, and how does AHL guard against them?

We're very aware that markets are dynamic and constantly evolving. To manage our risk we have experienced market professionals involved in all aspects of our trading processes. We have a specialised risk team within AHL, and in addition there's a separate one for the Man Group in general which also looks at what we do.

In addition to having one of the industry's most advanced electronic execution platforms, we also use human traders, which a lot of funds similar to ours don't. We believe that they add a huge amount of value to the risk monitoring process - they're the model's eyes and ears. Our human traders will never override a trade produced by our systems, but they will provide feedback on liquidity and market dynamics to the portfolio management and risk teams long before a model would, which helps us to ensure that our positions are always appropriate.

We believe in transparency, and are founding members of the Hedge Fund Standards Board.

What kind of investors does AHL attract?

We have a wide range of retail and institutional investors from all over the world. Investors are attracted by the diversification we can offer their portfolios, as well as our high returns. AHL has one of the longest track records in the industry, and investors typically stay with us for the long term. One of the great things about being part of the Man Group is that we've got a huge distribution network. We have the means to sell our products globally, unlike a lot of our peers.

How does AHL fit into Man's overall business?

AHL complements our two other large investment managers - Man Multi-Manager and GLG - very well. The three have very distinct investment styles, but by combining different parts of our offerings, we can offer great portfolios to investors. For example, as our models tend to perform particularly well in times of crisis - in 2008, we produced returns of almost 40 per cent for our investors as global stock markets collapsed - their performance has a very low correlation with that of equity-based funds (those which invest in shares) meaning that the two types of investment can work well together to diversify a portfolio. However, all of us across the three parts have similar approaches to our work - we're all very focused on being the best in the marketplace.

What opportunities are there for graduates at AHL?

At the moment AHL are looking for newly qualified PhD students who have a strong academic background in numerate subjects to join us on an 18 month rotational programme. Alongside this, we have 2012 graduate vacancies in our Finance, Operations and Technology departments. These roles are a great opportunity for talented individuals to join a world-leading business and work alongside our investment managers in a fast-paced, collaborative and dynamic environment.