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Rich Lee, Baird & Co

The US’s Baird moves further into program and ETF trading


Milwaukee-based Robert W Baird & Co is an American multinational independent investment bank and financial services company, offering broker dealer services to institutions and asset managers, focused on the middle market arena, particularly single stock small and mid-cap companies. The firm has a growing international footprint with an office in the UK servicing UK institutions looking to invest in the US.

Some 10 years ago the firm expanded its offering, and hired Rich Lee, Head of Program Trading, with an expertise in the ETF space in addition. “I was hired to build out the firm’s Program and ETF Trading offering,” Lee explains. “In today’s environment it’s hard to be in one silo.” 

The firm is still relatively new to the ETF space, having started to focus on it in the last two years, as they built out the capabilities of the program trading business. “Most dealing desks have a lot of the technology and skill-sets that make program trading close cousins with ETFs,” Lee says.

“We focused with building out that platform and technology and now we have the scale and we can extend it into the ETF space.”

Lee finds that among his US institutional client base there is a lot of interest in ETFs, especially with the growth of different products. “The first generation was typical passive index products which were very vanilla,” he says. “It was a question of take an index, follow it, try to minimise tracking error, watch your expense ratios and attract assets – hopefully,” he says. “We have become a little more sophisticated, bringing in commodity-based ETFs and then products like smart beta and the VIX and then the natural extension is traditional active money management.”

Lee is seeing a lot of customer interest in the semi-transparent ETF products. “How do you take something index-based and transparent to something that is not?” he asks. “The whole proposition in active management is picking stocks and how do you do that without telegraphing to the whole street ‘I am going to be a big buyer of Facebook’ or whatever.”

“To the ETF provider community active ETFs are familiar, but the typical Baird customer is seeing traditional active stock managers saying: ‘This passive investment is starting to bleed into our space: What is going on here?’ so we are having lots of conversations educating our customers on what semi-transparent ETFs are and how to think about them.”

Lee believes that the rise of active ETFs and even funds converting to active ETFs is down to the world of instant gratification that we live in now. “Some of the growth of the meme stock trading is down to instantaneous transactions,” he says. “Cost effectiveness and the real time component in active ETFs versus having to wait to the end of the day is so well geared towards where we are within our society.”

In terms of trends, Lee is seeing some wary interest in cryptocurrencies from his client base. “I feel like most institutions are not sure what to make of cryptocurrencies,” he says. “Lots of institutions are wary but now they are feeling there might be some longevity to the sector but ask what it means as an asset class and there is some regulatory uncertainty which will drive the investment process.”

Lee believes that ESG is another thing altogether. “Ten plus years ago, when ESG first emerged, it was a check the box exercise, but now it’s getting some legs, with people taking it seriously and it has moved beyond a fad and people want to be associated with brands that are sort of aligned with their values.”
Lee quotes a New York Times’ interview with a family office that spells out clearly that they are taking an ESG approach to all their investments because it seems wrong to invest philanthropically on the one hand, but have their investment portfolio undo all the good work.


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