Elke Wenzler

With Elke Wenzler and her trading team at MEAG

February 2024 in Buyside Interviews

MEAG handles the investment activities for Munich Re, ERGO and from private and external investors, making it one of the world’s leading asset management companies which currently manages EUR 323 billion in assets under management (as to 30 September 2023). Elke Wenzler, head of trading at the firm, talks to FXAlgoNews about the key objectives of her dealing team and its use of algorithmic FX trading toolsets.

Elke, you have been spearheading the development of a comprehensive multi-asset trading desk for your firm. Please tell us a little more about that and what your responsibilities and job at MEAG involves.

As Head of the Multi Asset Trading Desk, my main responsibility is to oversee the entire trading process for multiple assets such as equities, bonds and FX, cash and derivatives. I also oversee the overlay/hedging strategies and securities lending. This involves me and my team working closely with various other teams within the firm such as Risk, Business Mgt, Legal and Compliance and Operations to implement and ensure a robust and efficient trading platform for our PMs and clients. An important part of my role is to identify the emerging requirements and needs and translate them into our technical infrastructure, ensuring compliance with regulatory guidelines and industry standards. We closely monitor market trends and developments to continually enhance the trading desks’ capabilities and stay ahead of the curve.

In the past you have held various positions at sell-side firms. In what ways has the experience and expertise gained from this helped shape your work on the buy-side?

The experience and expertise gained from working on the sell side has greatly influenced and shaped my work to date. Having different perspectives is particularly beneficial to having a broad and deep understanding of markets and financial instruments, helping me to understand market dynamics, trading strategies and risk management techniques that I can apply on the buy side. On the sell side I have been involved in structuring, execution and order routing for clients, while in my previous role on the portfolio management side I was responsible for specific markets and portfolio construction. Both sides now give me a solid understanding and well-rounded perspective of the financial industry and the needs of PMs and our clients. This is invaluable and I can now use it to ensure efficient and cost-effective trade execution, helping me to navigate the complexities of my current role and add value to my firm and our clients.

How would you describe the key objectives and guiding principles of your desk and the dealing activities it undertakes? 

With a broad and diversified mandate, our key objectives are to minimise transaction costs by executing trades at the best prices, minimising market impact and optimising timing and volume to achieve efficient execution and, in certain mandates, to add alpha. Across all asset classes, we aim to enhance the liquidity of our mandates, which is particularly important in high-touch trading. This involves actively managing liquidity risk, ensuring access to diverse liquidity sources and optimising trading strategies to efficiently maintain market liquidity even in stressed market conditions. Another key objective is risk mitigation – the identification, assessment and management of market, counterparty and operational risks. At the heart of a trading desk is the principle of best execution – trading at the most favourable terms for your firm and your clients. In addition, compliance and regulatory adherence is a fundamental principle for all buy-side trading desks to ensure that our activities are always conducted in a legal and ethical manner, which includes adherence to the FX Global Code. In addition, the Desk’s values aim for transparency and open communication with our portfolio management, clients, counterparties and other stakeholders about market conditions and trading activities to ensure a trust-based relationship to achieve the best results. And a strong focus on risk awareness and risk management – including the ongoing implementation of risk assessment and risk controls to remain relevant in an ever-changing market environment. As a new desk, we are still in the process of changing and improving our processes, technology infrastructure and trading strategies – a process that I am delighted to have embedded in the DNA of my team, because with technology, regulation and liquidity changing dynamically, we need to constantly evaluate to ensure the performance of the desk and add value to our business.

MEAG has a worldwide presence and offers investment solutions to institutional clients as well as financial intermediaries

How important have execution algorithms now become in your day to day trading operations and what are the advantages of using them? 

FX algos have been an important part of our toolkit for execution for a number of years now. They allow us to have closer control and management of the execution of our larger FX trades as well as gather a lot of market information for further analysis.

What are your main objectives when undertaking algorithmic FX trading and what types of orders are usually a good fit for them?

Our objectives can vary depending on the type of order we receive and from which of our internal clients. For the less time critical executions, we are looking to be more passive and minimize overall market impact. These tend to be a lot larger in size and would usually have a large bid/ask spread when trading on a risk transfer price. Trades which are time sensitive, and in more illiquid currency pairs, we may look to get executed as quickly as possible whilst trying to outperform a risk transfer price.

How do your source your FX algos and what issues influence how you go about that?

We have our main panel of bank algo providers that we rotate within, using TCA to analyse their performance. We are looking for providers that provide the execution, functionalities and tools which can easily be integrated within our processes. Flexibility and performance are key. In addition, we incorporate the principles of the FX Global Code into our decisions, in particular with regard to conflicts of interest and the routing policy applied.  

How much real-time visibility do you seek on how an algo is performing during the execution process?

We like to be able to see in flight TCA along with market condition information such as liquidity conditions and depths of books. In the future, we think this can be expanded to see real time markouts and impacts of the individual fills to provide more information to us as traders.

How do you analyse the results of your algorithmic FX trading to see how effective it is and what metrics are useful for achieving this?

We have used external TCA providers for many years to enable us to use like for like comparisons and not rely solely on the banks’ own data for the analysis. We compare metrics such as actual performance vs forecast performance; benchmarking against risk transfer and arrival pricing, as well as looking to see what kind of market impact the algo has had.

We have a number of internal projects looking at how we can best lever AI and ML for our trading and execution

In what ways does TCA and other types of analytics help you to make more effective use of FX algos?

TCA feeds into our decision making processes, allowing us to use more quantitative measures to determine which execution method would result in a best probable outcome. It helps us decide on provider selection and algo strategy based on current market conditions and what we would like to achieve. We don’t believe that this kind of TCA provides a single answer for execution, but is one of the tools that feed into our decision making process.

What other data related to algorithmic FX trading are you trying to capture which may help you to improve your execution outcomes?

I think we are already capturing so much data around algo trading, but what is becoming very interesting is peer group analysis data and being able to compare across a deeper set of data than just our own execution.

AI and Machine Learning are now being leveraged for algorithmic FX trading and its associated analytics. 

In what ways are you looking to exploit the power of next generation technologies like these in your own trading operations?

We have a number of internal projects looking at how we can best lever AI and ML for our trading and execution in terms of making things more efficient and improving our execution process.

We will continue to expand our range of algos in order to trade or utilise algos in asset classes that are not currently used or available

In what ways are you likely to expand your use of FX execution algos still further in the future?

As we already use algos extensively on the desk, we would be looking for further developments in areas such as NDF and swap trading , while the latter is probably more subject to having a more developed electronic market for swap trading.

In terms of further improving your trading desks operational efficiency, effectiveness and development, what’s going to be on the priority list for 2024?

We are in the process of improving our technology infrastructure, including the implementation of a new EMS to address the issue of interoperability between the various systems we use. 

Our aim is to provide every trader in the Multi Asset Trading Team access to all the necessary trading protocols and information they need to execute trades efficiently, both pre-trade and in-trade. 

We also aim to increase automation while maintaining our focus on achieving best execution through the use of data, analytics and AI. In addition, we will continue to expand our range of algos in order to trade or utilise algos in asset classes that are not currently used or available.