Ex-AQR algo chief rolls out new execution platform

Industry algorithmic trading veteran Hitesh Mittal formally launched his own independent platform for buy-side fund managers building on his experience as global head of trading at AQR Capital Management and prior to that his 10 years at broker-dealer ITG. After nearly three years of development, the BestEx Research Group publicly released its complete end-to-end, multi-asset class global trading offering, complete with a back-testing platform and transaction cost analysis (TCA) in a broker neutral model. Mittal’s team has also secured distribution through agency brokerage Abel Noser to roll-out the trading algorithm to more than 500 institutional fund managers. “Execution algorithms offered by banks and brokers have not evolved in over a decade and are stale, opaque and conflicted with their own internal liquidity pools, leaving managers to pay as much or more than management fees in implicit costs,” said Mittal, founder and CEO of BestEx. “Our next generation platform significantly cuts down these costs with iterative measurement and a systematic, quantitative approach to execution.” His experience in building AQR's algorithmic trading model was what gave him the visibility on the impact execution has on fund managers. After going live with his AQR algorithm that traded only in U.S. equities initially and then based on that positive experience AQR expanded the execution tool to global, FX and futures and saw significant improvements across the board in slippage. "A systematic and focused approach to execution can yield anywhere between 20-60% improvement in slippage depending on the asset class based on my experience," said Mr. Mittal. Today BestEx offers an end-to-end solution that includes a TCA system that measures and continuously reduces transaction costs by attributing them to every aspect of the orders that an algorithm places such as venue, timing, size, price and order type. According to Mittal, the firm’s simulation platform allows for analysis of algorithm behavior, while simulating the exact rules of each exchange in each market. This eliminates what he described as the trial and error approach that is practiced in the industry today. That said, firms such as D.E. Shaw and Renaissance Technologies, are well known to have developed their own trading execution algorithms over the years, but as Mittal acknowledges most fund managers do not have the time, talent or deep pockets to create such in-house solutions. The big problem with buy-side firms is the multiple liquidity providers and banks in FX and futures. Mittal said that at AQR the algorithm made decision on trades and it ultimately gave him the visibility on the impact such technology could have on a manager’s bottom line. “Abel Noser’s DNA is in cost analytics and BestEx Research dovetails very nicely because it specifically limits the factors that create slippage costs and allows us to customize and back-test these strategies for clients in a seamless way,” said Doug Rivelli, president of Abel Noser LLC. Joining Mittal were two of his key hires from more than a decade ago at ITG. Nigam Saraiya now oversees research and product management at BestEx and previously was head of transaction cost analysis at AQR. Prior to being hired by Mittal at AQR, he was head of trading analytics at ITG. Kathryn Berkow is a professor at the University of Delaware’s business school and is also currently a senior researcher at BestEx. Mittal hired her initially as a market microstructure specialist at ITG.

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