BTIG, a broker-dealer partly owned by Goldman Sachs, is pushing into new markets by helping fixed-income investors buy and sell securities in developing countries, which some observers say have matured and now more closely resemble their trading partners in the Group of 7.
Last week, BTIG expanded its fixed-income business in London by hiring a team of professionals from UBS, HSBC and Knight Libertas focused on emerging markets.
It said the hirings were the first step of an expansion plan for its fixed-income group, which was launched in February of last year and now has more than 70 employees.
“I appreciate it when people call us ambitious, but nine out of 10 times, any buildout — and BTIG is no exception — is at the request of our clients,” said Gary Hayes, chief executive of the London business, BTIG.
Wall Street’s efforts in countries such as Brazil, Russia, India and China have picked up asbanking firms look to round out their sources of fee income. Investment banks are shopping their services as deal advisers or helping companies in these rapidly growing economies raise capital in the U.S.
Some observers are less than enthusiastic about emerging markets.
Aaron Izenstark, co-founder and chief investment officer for the Northbrook, Ill., asset management firm IRON Financial, called them “the flavor of the month right now in the investment management arena.”
Izenstark said he wants to wait and see whether the recent high returns and relative stability of emerging markets are cyclical. “Is it just a fad, or is it something long-term?” he asked
According to Izenstark, an end client must understand the downside. “The real issue is that it carries significant risk,” Izenstark said. “The yields sound good, but at the end of the day, can you stomach the risk?”
Nevertheless, experts expect many emerging market economies to grow much faster than the U.S. economy.
In a report published last month, Research Affiliates of Newport Beach, Calif., said developed markets account for 62% of the world’s gross domestic product and owe 90% of the world’s sovereign bond debt.
By contrast, the emerging markets collectively produce 38% of the world’s GDP and owe just 10% of the world’s world sovereign bond debt, the report said.
“There’s a lot of red ink in the developed economies of the world, and a lot of green in the emerging markets,” the report said. “Many developed countries carry debt — not even counting often vast off-balance-sheet debt — which is out of proportion with their scale in the world economy.”
The London team hired last week consists of Russell Scott, Cornelia Colonius, Alpesh Lad and Darren Reiss, a managing director who will oversee that team. Before joining BTIG, he was a director on the institutional fixed-income sales desk at Knight Libertas.
“The emerging market fixed-income sector is a major source of funding for developing countries as they enter and open their capital markets to the world and global investors,” Hayes said. “Our fixed-income clients have a need for the service we provide within this space.”
In these markets, “the future of fixed income … is for a larger, expanded market with higher levels of issuance and a broader spread of investors,” he said.
He would not say whether his firm aspires to be a primary dealer for the Federal Reserve Board — a natural move for anyone building out a fixed-income business.
BTIG was formed five years ago through the merger of two trading firms: Baypoint Trading of SanFrancisco, founded by Scott Kovalik, Kevin Chessen and Cordy Snyder, and Bass Trading of New York, founded by Steven Starker and Brian Sklar.
Goldman bought its share in 2008, and BTIG used the proceeds to fuel its expansion.
(It did not disclose the size of Goldman’s stake, except to say it was a minority stake.)
The first hires for the emerging markets group were Alfredo Chang and Patrick O’Sullivan, who joined the firm late last year. Chang was head of emerging markets fixed income for Lehman Asset Management. O’Sullivan was a director at Merrill Lynch, where he had senior sales trading syndicate and structured product development roles.
In addition to its work on the emerging markets team, BTIG has made hirings in the high yield, high grade convertible debt and structured product areas.
In May, it hired Dan Castro to create a structured finance analytics and strategy group. Castro is well known for his work as Merrill’s head of ABS research. More recently, he was the chief risk officer of Huxley Capital Management.
This year, BTIG unveiled an equity research team.
It also expanded its prime brokerage business, which caters to equity and fixed-income hedge funds. Mike McCuin from Kaufman Rossin Fund Services and Adrianne Schulte from JPMorgan Chase will operate out of Boston for BTIG’s prime brokerage unit.
Hayes said he had not set goal for hirings in London.“If additional groups become available with good, deep client relationships that we do not cover, we would look to take advantage of that,” he said.
Before joining BTIG in 2008 to establish its European operation (which began one year later), he was chief operating officer for Collins Stewart. Before that, he was a managing director with Merrill and Smith New Court, and he has held trading and sales roles in London and New York.
Luz Padilla, portfolio manager for emerging markets fixed income at DoubleLine Capital of Los Angeles, said the renewed interest in emerging markets is tied to efforts by countries to cut debt, as well as the perception among investors that the countries now have greater political stability.
“If you were to go back to the mid-1990s, the bulk of money in the emerging markets was in equities,” she said.
“They provided the highest returns. But governments of most of these emerging economies are now more stable,” including Brazil’s.
BTIG has about 420 employees worldwide. In the first quarter of last year, it handled U.S. trades for 4.3 billion shares a month.
