On Tour With an Outsourced Trading Specialist: Vol. 1, Tour Observations


Traveling in the U.S. and abroad to meet face-to-face with current and potential clients is an important part of our business. Here’s what we’re hearing from the buy side.

In the past few months we’ve toured several cities in the U.S. and abroad, meeting with asset owners, brokers, research firms and investment managers of all sizes. Whether it’s someone we know and have worked with for years, or someone we’re meeting for the first time, there’s no substitute for a face-to-face discussion.

Our travel is of course meant to raise awareness about Tourmaline Partners and the trading solutions that we provide, but it importantly also serves to educate the marketplace regarding the growth and acceptance of outsourced trading and the nuances of the products that are delivered. We see increasing interest from the buy side in both having these conversations and better understanding the space. At the same time, it’s an opportunity for us to learn more about the challenges our clients and other industry players are facing, and to understand how they might benefit from the kinds of services we offer. In this, our first “On Tour” journal, we want to share with you what we are hearing.

One difficulty we continue to find is that “outsourced trading” is somewhat of a misleading term; it sounds like an all-or-nothing proposition. At Tourmaline, we work with many emerging managers who at their launch choose not to have a trader for financial reasons. However, the fastest growing part of our business is working with investment managers who have their own traders and/or teams, and are looking to supplement their reach to the street, improve trading alpha, gain access to additional liquidity and better manage costs.

We see this more as “leaning on experts” as opposed to “outsourcing”.

Demand for Tourmaline’s supplemental trading solutions is also driven by structural industry change – increased regulation and compliance costs, technological advancements in trading, a growth in passive management, performance challenges, etc. Additionally, as we have noted in the past, unbundling and cost pressures are continuing to force the sell side to be more selective in deciding which business lines to pursue and how many clients to support. This also augments our growth.

These trends and a greater acceptance of outsourcing generally are expanding our total addressable market.

Confirming that we’re on the right track, we’re now seeing new entrants to the space. This is not unexpected. “Outsourced trading” is now being offered by traditional agency brokers, custodians and market makers as the sell side seeks new lines of growth. Needless to say, these offerings differ greatly and doing one’s homework is paramount in selecting the right partner and avoiding inherent conflicts of interest. With that in mind, we will continue to help investment managers sort through what they need to know. Some helpful rules of the road can be found here.

For those interested in learning more, we are happy to share additional observations and insights from our latest Tour. Please reach out to us in the U.S., London or Sydney.

Tim O’Halloran is a Managing Director at Tourmaline Partners, LLC