Milford Asset Management has employed two specialists to a central dealing desk through which all Milford trades are now channeled.
In November last year Milford hired Mark Riggall as senior dealer. Sean Harrison joined Riggall in a junior position on Milford’s newly-established central dealing desk this April.
The compliance hires were prompted by the Financial Markets Authority (FMA) investigation into alleged trading breaches sheeted back to an unnamed individual Milford employee.
“The FMA recognises that, as a result of the programme of improvement undertaken by Milford, individual portfolio managers no longer execute trades for their portfolios,” the FMA Milford settlement agreement says.
Milford managing director, Anthony Quirk, said the manager’s trading governance systems “could and should have been better”.
“We have improved,” Quirk said. “Through hiring new people and changing the trading software we use… we’re implementing that new system now, which is market-leading internationally.”
While Quirk declined to name the system, Stephen Hunt, Russell Investments head of operational due diligence (ODD), said there were “plenty of well-known trading applications”.
“Bloomberg, Blackrock’s Aladdin, Charles River… They all do much of a muchness,” Hunt said. “The system is not the issue, it’s the controls around it that matter.”
He said leaving portfolio managers to trade without oversight should not happen in any funds management firm – no matter what the size.
“For portfolio managers it’s all about performance; for traders it’s about best execution,” Hunt said. “If a portfolio manager is solely in control of trading without oversight and no ability of other employees to whistleblow, there’s plenty of scope for wrongdoing.”
He said while smaller fund managers may not be able to justify an independent central dealing desk, at least one other person in the business should be checking all trades daily.
“And everybody should be able to whistleblow without any fear,” Hunt said.
“It’s all about having a controlled environment,” he said. “And that is led from the top.”
Hunt carries out ODD on managers being considered for, or already on, the Russell multi-manager platform.
He said it was important to ensure managers were complying with trading procedures with regular “validation” checks.
The FMA has indicated it would continue to monitor Milford’s compliance with recommendations made in an earlier report on the manager carried out by consultancy firm PWC.
“Milford undertakes to complete the recommendations made by PWC and to engage an external review following the implementation of the recommendations, which will be reported to the FMA,” the settlement agreement says.