Compensation increase causes spending to grow
February 12, 2019

Budgets for buy-side trading desks in the US and Europe grew 8 percent last year, fuelled by increased spending on compensation.

A 2018 spike in compensation expenses on buy-side trading desks was by far the biggest driver of the 8 percent overall increase, which followed essentially flat trading desk budgets in 2017. The average budget for asset management and hedge fund trading desks is US$2.73 million.

"Compensation growth last year ended a three-year run in which compensation spending was being crowded out by ever-expanding technology costs," says Brad Tingley, Market Structure and Technology Analyst at Greenwich Associates and author of a new report, The Buy-Side Spending Battle: Compensation vs. Technology.

Technology expenses had been growing as a share of total budgets for both equity and fixed-income trading desks since 2015. Last year that trend reversed, with compensation climbing by eight percentage points, to 68 percent of total budgets.

Although technology costs shrunk as a share of the total, institutional investors reported significant increases in spending in a few key areas. In particular, as a share of total technology costs, spending on execution management systems (EMS) increased to 6 percent of total technology spend. Increases were also reported in spending for market data terminals, market data feeds and hardware.

Despite the massive impact of e-trading to date, buy-side traders and portfolio managers consider it an underappreciated technology relative to its potential to revolutionize financial markets, and approximately 40 percent think the impact of artificial intelligence and blockchain are overexaggerated.

"In direct contrast, our data shows that the impact of the truly transformative technologies related to big data and alternative data remain underappreciated by the market as a whole," saysTingley.

 





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Budgets for buy-side trading desks in the US and Europe grew 8 percent last year, fuelled by increased spending on compensation.

A 2018 spike in compensation expenses on buy-side trading desks was by far the biggest driver of the 8 percent overall increase, which followed essentially flat trading desk budgets in 2017. The average budget for asset management and hedge fund trading desks is US$2.73 million.

"Compensation growth last year ended a three-year run in which compensation spending was being crowded out by ever-expanding technology costs," says Brad Tingley, Market Structure and Technology Analyst at Greenwich Associates and author of a new report, The Buy-Side Spending Battle: Compensation vs. Technology.

Technology expenses had been growing as a share of total budgets for both equity and fixed-income trading desks since 2015. Last year that trend reversed, with compensation climbing by eight percentage points, to 68 percent of total budgets.

Although technology costs shrunk as a share of the total, institutional investors reported significant increases in spending in a few key areas. In particular, as a share of total technology costs, spending on execution management systems (EMS) increased to 6 percent of total technology spend. Increases were also reported in spending for market data terminals, market data feeds and hardware.

Despite the massive impact of e-trading to date, buy-side traders and portfolio managers consider it an underappreciated technology relative to its potential to revolutionize financial markets, and approximately 40 percent think the impact of artificial intelligence and blockchain are overexaggerated.

"In direct contrast, our data shows that the impact of the truly transformative technologies related to big data and alternative data remain underappreciated by the market as a whole," saysTingley.

 



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