There’s a new research report by TABB that says hedge fund trading activity in US equities is growing in contrast to trades carried out by proprietary trading desks.The TABB report, US equity trading 2010: low-touch trends, showed two interesting things.
From Hedge Fund Review:
A report on low-touch trends in US equity trading indicated that trading by hedge funds and long-only asset managers accounted for almost one-third of the average US daily share volume in the first quarter of 2010.
This was an increase from 25% in December 2008.
Hedge funds carry out approximately twice as much trading activity as long-only asset managers.
So volume in equities trading is up 32% in a year and a half, mostly thanks to hedge funds.
Over half (54%) of the hedge fund traders interviewed by TABB (57 head traders at hedge funds worth a total of $182.1 billion) used a sales desk as the execution venue.
Only 38% of the other asset managers interviewed (66 traders representing $12.1 trillion AUM) used one.
So the volume of hedge funds trading in equities is growing, but they’re still using sales desks. Other asset managers aren’t. One reason why is that they’re using algorithms.
Eighteen per cent of hedge funds use algorithms. 30-one per cent of long-only managers use them.
It’s curious that hedge funds propelled the volume in equities trading forward because it seems to suggest that they’re using more algorithms. But they’re still not trading using algos as much as prop traders at other asset managers.
One conclusion might be that the use of sales desks will only decrease more as hedge funds continue the trend of turning to algos instead of using sales desks.