I recently transitioned to the buy side after over five years in an LDI sales role. The first week felt a bit like I had gone behind enemy lines but I’m now starting to settle in and find my feet.
While there are still some things I find odd – being on the other side of the table during meetings, a few of my co-workers’ surprising meal choices (McDonald’s on a Monday?!) and occasionally missing the buzz of the trading floor – working in the City beats Canary Wharf hands down and it has been fascinating to gain a more complete understanding of the industry. Here are my three key takeaways from the first three weeks:
1. Asset managers by name, liability risk managers by nature
In my previous role I was privy to the market activity of the LDI managers, but not what lay beneath. I’ve since discovered a whole new world of actuarial valuations and liability cashflow modelling in which we analyse, interpret and update the liability cashflows to better reflect current market conditions. This is a technical process and can be challenging at times, but it forms the basis for all investment decisions.
2. Same juggling act, different balls
Working on the sell side often feels like a juggling act, trying to understand and manage the needs and expectations of clients and traders at the same time. We face similar issues on the buy side. A lot of our time is spent managing relationships with various stakeholders: our banking counterparts, the consultants who hold sway, and a scheme’s trustees. The pace at which things move can be frustrating at times but, with many moving parts and several sign-offs required for any decision, this is understandable.
3. Our heads aren’t buried in the sand
This may come as a surprise to some on the sell side, but we appreciate the challenges that they face and are not unsympathetic. Of course, much of the talk in LDI over the last year has centred on the impact of non-cash collateral credit support annexes (CSAs) and banking regulation on pricing and valuations. On the sell side, it can feel like very little progress is being made. However, for a pension fund employing an LDI strategy, the return drag of posting cash collateral is a significant issue and one for which there is seemingly no magic bullet. The cash-only collateral/clearing cost versus market access debate is a complex one; ultimately, each fund will need to weigh up the arguments against its overall strategy and its ability to generate cash and act accordingly. This is something I didn’t fully acknowledge before.
I’m sure that I will continue to learn and adapt over the coming months as I grow into the role. Hopefully that growth won’t come anywhere near my waistline- I’ve just got to figure out how to say no to those Monday afternoon McDonald’s…