Bank of America Merrill Lynch
Karen Fang is leading a new cross-FICC ETF trading team at Bank of America.
- A relatively rare occurrence just three years ago in credit markets, billion-dollar trades packaged with hundreds of different bonds are now happening every week.
- In July, Bank of America went live with a new desk in its fixed-income division aimed at capitalizing on the growing trend of massive ETF and portfolio trades.
- The new team is being run by star executive Karen Fang, a Goldman Sachs alum whom COO Tom Montag recruited in 2010 to run a "SWAT team" called cross-asset solutions and strategies.
- Fang, who ran FICC sales in the Americas before the recent promotion, discussed the new team in a recent interview and explained why Bank of America believes it will help them win over clients and grow revenue.
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In July, Bank of America went live with a new desk aimed at capitalizing on a growing trend in its fixed-income division: massive portfolio and ETF trades.
A relatively rare occurrence just three years ago in credit markets, billion-dollar trades packaged with hundreds of different bonds are now happening every week. Banks have been upgrading their technology and altering their tactics to sate the growing hunger from asset managers for these bespoke strategies in liquidity-starved asset classes.
Karen Fang, who is considered one of the markets division's brightest stars, is leading the charge at Bank of America as the head of the new global cross-FICC ETF trading team.
Ensuring this initiative - a centralized desk working horizontally with all the other FICC products - succeeds not only commercially but also as a collaborative effort in an industry where teams and even individual traders often hive themselves off will largely ride on Fang's shoulders.
"The knock on large banks is that we tend to be siloed and hard to navigate. If we can connect the dots, then we can deliver better on these cross-asset ETFs as well as multi-asset portfolio rebalancing, which is for sure going to happen more frequently," Fang told Business Insider in a recent interview.
Several former Bank of America markets execs who have worked with Fang described her as one of the smartest people in the division and well-equipped for the challenge, even though she lacks a formal background in trading.
"Shes one of the absolute smartest people I've met from a structuring point of view and a client interaction point of view," one former exec said, adding that she could "easily master" the trading components.
Fang, 43, grew up in China but went to college at the University of Tokyo - before enrolling she reportedly aced a two-year Japanese language course in two months to get up to speed. She spent the early years of her career as a derivatives-structuring specialist with Merrill Lynch in Tokyo and London, Deutsche Bank, and then AIG Financial before joining Goldman Sachs in 2007, where she ran the investment bank's cross-asset solutions group for pensions, endowments, and foundations in North America.
In 2010, she was recruited by Bank of America COO Tom Montag - also a Goldman alum - to lead the firm's cross-asset solutions and strategies group, what she describes as a "SWAT team" that focused on coming up with creative ways for clients to manage risk or their balance sheets. She grew that team from 10 to more than 50 before she was promoted to run all of FICC sales in the Americas in 2016.
Fang was tapped in March to lead the bank's new centralized FICC ETF trading desk, which aims to consolidate the technology and know-how it's developed handling bond ETF, portfolio, and index trades and deploy that to other complex, liquidity-challenged areas on the trading floor.
"Given the uniqueness of each fixed income asset class, the evolution towards a more indexed/enhanced beta driven market will not follow a uniform path and we need to be thoughtful about the nuances and trading dynamics of each market," Fang said. "We are defining the added value that we can bring to our franchise by acting as a horizontal overlay to each trading business, in order to deliver the efficiency and flexibility our clients demand."
The new team is part of wider effort to consolidate global cross-asset trading desks, including dedicated groups, also under Fang, focused on counterparty portfolio management as well as structured notes.
The shakeup on Bank of America's FICC trading floor comes amid a broader boom in credit ETFs. The assets of bond ETFs in the US surpassed $1 trillion for the first time in June and are projected to double within five years.
Credit, especially investment-grade, has gained the most traction so far within FICC portfolio and ETF trading, but Bank of America's ambitions are larger.
The effort doesn't come without risks. Gobbling up massive, low-cost trades could crush Bank of America's margins, compared to how the trades might have been executed in the past.
It wouldn't be hard to imagine one of Wall Street's leading bond-trading franchises dragging its heels instead of embracing such a threat to its turf.
But in theory, these cross-asset trading desks are designed to make it cheaper and more efficient to manage and hedge its exposure, with tentacles feeding on a buffet of assets across the FICC trading floor.
"You have to be efficient about risk management and balance sheet usage everywhere, you have to leverage and collaborate where you can, and you have to make sure that you do this all real time," Fang added, "And we rely on our client franchise and the velocity of our trading to net out risk factors wherever applicable."
Moreover, the bank believes the increasing speed, transparency, and liquidity it can provide clients with these integrated teams will create more revenue to go around the trading floor.
The operation has the backing senior management, including global FICC trading co-heads Jim DeMare and Bernie Mensah. The firm believes its approach, with a cross-FICC trading desk straddling all the lines of business, is distinct - competitors like JPMorgan Chase and Goldman Sachs are also chasing similar customers and transactions - and will give them an edge.
"It's always easy to say, 'We want to take a wait-and-see approach on some of these things because they're going to crush our margins,'" Fang said. "But we can also take this as an opportunity to enhance our services to our clients, improve transparency and liquidity in the trading ecosystem, and maintain our market leadership position in the fixed-income business."
- Read more:
- A $1.5 billion credit trade, a seismic market change, and a brand-new trading desk: How Bank of America learned to stop worrying and love the bond ETF.
- These are the 30 most powerful people in Bank of America Merrill Lynch's $8 billion bond-trading division
- A leaked memo shows a shakeup is underway in Bank of America's sales and trading division, as a star sales exec is switching roles and another is leaving the firm
- Merrill Lynch's 'thundering herd' of advisers are winning over troves of new millionaires, and the growth is coming from a surprising place
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