WatersTechnology: The buy side, the changing nature of buy v. build, and how fintech has evolved

Neal Pawar, Talos advisor, former CTO of AQR and current COO of Qontigo, chats with Anthony about some of the major trends that are changing how asset managers interact with the vendor community, and how this shift mirrors the most significant evolutions in capital markets technology over the last decade.

Pawar was AQR Capital Management’s chief technology officer. He spent more than a decade at DE Shaw & Co., during a time when the fund’s assets under management grew from just shy of $1 billion to $45 billion. He was chief information officer of UBS Wealth Management. He was group chief information officer of Deutsche Bank. He’s held other roles, but today, he’s chief operating officer of Qontigo, a risk, analytics, and index solutions vendor that was born out of the merger of Axioma and Deutsche Börse’s Stoxx and Dax units.

His nearly 30 years of varied experience in the industry makes Pawar an expert in the field of financial technology. But more than that, his passion and zeal for the subject (and Liverpool football— 4-1 … ouch) comes through every time we’ve spoken with him. (You can read about his career at AQR up to January 2015—and his short career as a Bollywood actor—here; you can listen to him talk about the importance of open-source and finding/retaining engineering talent in 2017, here.)

I recently caught up with Pawar because I saw he was named a member of Talos’ advisory board.

The crypto end of the equation

Again, though, the reason I reached out to Pawar in the first place was mainly because I saw he was joining Talos as an advisor. And if you’re going to talk about evolution in the capital markets, the topic of crypto (and DLT…but more on that in a minute) must be addressed.

First, something to know: Anton Katz, cofounder of Talos, reported to Pawar when the two worked at AQR. And Katz met his partnering co-founder, Ethan Feldman, prior to arriving at AQR, when the two worked at Broadway Technology. So Pawar has a direct connection to Katz and Feldman.

But the backgrounds of Katz and Feldman play into what Pawar has been talking about when it comes to pipes and rails. Katz, Talos’ CEO, was head of trading technology at AQR. At Broadway, he held several roles, most recently as director of software. Feldman, Talos’ CTO, spent a decade at Broadway and served as lead software engineer. Broadway, of course, is one of the leading fixed income trading platforms in the industry (which led to the whole ordeal of getting acquired by Ion Group, only to have the company splintered off—and that’s too complicated to get into for this column, so just read this and this if you’re interested).

This is all to state that Katz and Feldman have hardcore backgrounds when it comes to building institutional-grade trading platforms.

Now, what has hindered crypto’s ascent in the wholesale capital markets? Well, to name three issues, it’s the lack of institutional-grade trading tools, clearing and market data. But, as those three links highlight, major improvements have been made in just the last 12 to 24 months.

Pawar says that what he respects about Talos is the company is trying to take the lessons learned from AQR and Broadway, and apply them to the world of crypto to build the infrastructure that will not just underpin this nascent asset class, but that will allow it to more seamlessly be tied to more traditional asset classes, like equities, foreign exchange, and fixed income.

“What you really want to do is take the set of systems that you have, add an additional asset class to them so that you don’t have to clone all that functionality. But that requires the other side of that to be mature enough to connect in. Previously, that didn’t really exist in crypto, which is why I think a lot of institutional investors were not the first out of the gates trading here—it was much more prevalent on the retail side. I think now that institutions see crypto as an asset class that’s not going away—and it will become more and more part of their end-clients’ asset allocations or investment thesis—they have to have the rails and the pipes.”

Talos, he says, is looking to basically become the institutional smart order routing system for crypto, powered through APIs that take care of a lot of downstream connectivity to the ever-expanding range of exchanges that are out there. This way, a trader or portfolio manager can look at it as just another asset class to connect into. “So now, when you’re plugging that into the trading systems and order management systems that the client might be running, they don’t have to treat it any differently,” he says.