The Magazine for Securities Industry Professionals
www.tradersmagazine.com
October 2013
Janney Montgomery Builds Up Trading and
Research Desks in Down Times
By Gregg Wirth
G
iven the weak trading environment and steadily
declining volume, as well as the uncertainty over the
strength of the market and the economy overall, it
may seem like an odd time for a financial firm to be ramping
up its equities trading group.
But that is exactly what Philadelphia-based Janney
Montgomery Scott LLC is doing. Further, this is no jump on
the electronic trading bandwagon, but rather an old-school
buildup of seats on the trading and research desks.
The 180-year-old firm has added sales traders, sector traders
and research analysts and has designs on competing at the top
level for trading business and client assets, said Greg Voetsch,
one of the architects of Janney’s expansion. Voetsch joined
Janney Capital Markets as head of equities in January. And
interestingly, he came not from some staid brokerage, but from
KCG Holdings (formerly Knight Capital Group), where he
was head of global equities.
Despite his background in Knight’s bailiwick of electronic
execution and high-frequency trading, Voetsch hasn’t brought
the Knight trading model to Janney. “We’re not going to be in
the electronic business or the program business,” Voetsch said.
“We just want to be a traditional, full-service firm with a focus
in research and sales and trading of cash equities.”
To that end, Janney has added to its institutional equity
effort, boosting the sales/research side to 27 professionals, from
19; increasing its sales and trading desk to 27 pros, from 15; its
research unit, from 25 to 30 published analysts; and, in sector
trading, from two to six traders. More specifically, the firm
made the following moves:
• In mid-March, Janney Capital Markets added 12
professionals—including nine from KCG—in sector trading,
sales trading and research sales. The hires allowed the firm to
increase its footprint in New York, Boston and Philadelphia,
and open a new office in Atlanta.
• In April, the firm
promoted Andrew Maddaloni
to the role of director of equity
research. Maddaloni, a 15 year
industry veteran, held equity
research sales positions at Banc
of America Securities, Credit
Suisse and William Blair.
• In late June, Janney hired
three new senior equity research
pros, covering the sectors of life
sciences technology, REITs and
forensic accounting.
Greg Voetsch
This growth spurt has
pushed up business revenue
in the equity business 28 percent, year over year, even at a
time when brokerage commissions have come down as much
as 15 percent across Wall Street, Voetsch said. “So, we’ve had
a good move.”
David B. Weiss, a senior analyst with Aite Group, said that
over the past few months he’s observed the trend that mid-tier
firms are picking up newly available talent shed from larger
firms. “It may be opportunistic at the mid-tier level, because I
don’t see a lot of external reasons to be hiring traders now, given
the market,” Weiss said.
Janney Montgomery isn’t the only firm bulking up right
now. Cantor Fitzgerald has grabbed a team of exchangetraded funds traders from KCG Holdings; and BMO Capital
Markets, the North American investment banking arm of
BMO Financial Group (the Bank of Montreal), recently
brought on a new head of U.S. equity sector trading and
several new sales trading pros, picking talent from Barclays,
Citigroup and Goldman Sachs. Additionally, several midsize
firms cherry-picked many of the professionals cut loose by
Nomura Holdings when it shuttered its entire equities trading
business last October.
Voetsch explained that Janney Montgomery’s unique business
position—it’s a private firm owned by the Penn Mutual Life
Insurance Co.—provides an opportunity to undertake this
buildup despite the current trading environment. “Penn
Mutual is tremendously supportive of us, and it’s nice being in a
private company where we can build out and not necessarily be
looking at quarterly earnings as a measure of our performance,”
he said.
Voetsch explained he is simply building on the capital markets
infrastructure the firm began putting in place five years ago,
when industry veteran and Citigroup executive John “Jordie”
Maine came in as the firm’s new head of capital markets.
“When I got here, there was a good foundation, and we
just needed to start putting the second and third floor on it,”
Voetsch said. “It’s been fun building while everyone else is kind
of continuing to tear down and complain that the business is
difficult—the business is always difficult.” What’s more, he said,
Janney is not encumbered by the legacy of the big investment
bank model, where crushing infrastructure costs may curtail
expansion or force retrenchment.
Tough Times
To see regional or mid-tier financial service firms and
brokerages ramp up their trading desks and other operations
isn’t unusual, even during times of market turmoil. Indeed,
during the financial crisis of 2008-09, trading desks at many
mid-tier firms feasted on the talent being jettisoned by bulge
bracket firms trying to survive the tumult. During that
time, firms like Robert W. Baird & Co., Raymond James
& Associates, William Blair & Co., Stifel, Nicolaus & Co.,
Sanford C. Bernstein and many others brought in top Wall
Street talent and expanded deeper into areas like electronic
trading and international coverage, bulking up their research
and trading teams.
Still, there is the trading volume dilemma. Equities trading
volume has dropped since March 2009 in the aftermath of the
financial crisis, and there is little evidence it will rebound any
time soon. Volume was down another 7 percent through the
first half of this year, compared with the year previous, and
August posted the lowest monthly volume in more than five
years. Is this really a time to be building up a trading division?
“Volumes are getting near a bottom, but they could stay at
this bottom for a while,” Voetsch predicted, adding that highfrequency trading volume is down—and that was a big part
of the past growth in trading—institutional commissions and
trading levels are down, and there’s less portfolio turnover
among fund managers.
Yet he and Janney are undaunted. “You have to build a
business that’s sustainable in every type of market,” he said.
The firm’s expansion vision, as Voetsch described it, is built
off the firm’s respected research arm, offering clients execution,
liquidity and the service he knows they’re not getting at larger
firms or from electronic platforms. “And we know that a really
good research business, supported by strong distribution on
sales and sales trading, can be successful and really help service
our clients.”
Indeed, Janney has increased the number of accounts it’s
doing business with, working with close to 800 client accounts
this year, up from 525 last year. “And that helps liquidity, and
that’s what all clients are looking for—they want to trade blocks
of stock and want to get serviced well,” Voetsch noted. (Janney,
a private firm, doesn’t release full financial statements, but does
publish its annual balance sheet. For its year that ended in
June, the firm’s unaudited statement showed its total assets had
grown 43 percent to $3.22 billion, compared to $2.25 billion
for the same period in 2012.)
Indeed, analyst Weiss said that in addition to picking up
top-level talent, mid-tier firms can make a play for certain
customers of larger banks because these customers may not be
getting the attention they once did from these banks.
“The big banks don’t commit like they used to,” Weiss said.
In some areas of the market, such as OTC markets, derivatives
and corporate bonds, you’re seeing some of the big banks’
smaller customers move down to mid-tier firms for better
service, he said.
For now, Janney may be taking a break from its rapid
growth—Voetsch said the firm is where it wants to be as far
as personnel go. The firm’s capital markets business overall
is staffed by more than 300 people, the fixed income side is
around 160 pros, and the investment banking group numbers
more than 30. The firm focuses on just five vertical sectors:
financials, healthcare, consumer, tech and industrial. “We’re
not trying to be everything to everybody, but we just want to
be really good in the verticals we service,” said Voetsch.
Janney is in it for the long haul, Voetsch insisted, saying the
firm’s focus will be on expanding its account base, getting deeper
penetration on the accounts that it covers and developing more
avenues of client service—a concept he calls “mind-share”—
and growing that over time. “It takes time to build a mindshare with your clients, and to continue to do that, but the
nice part is that we’re going to continue to do that for a long
time,” he said. “We’re going to build a business that’s going to
be really strong for a long time at Janney.”
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