Team players 

Rotterdam’s Feyenoord football club does not boast star players but instead champions hard work and collective effort. Transtrend is similar in avoiding a star manager culture and majoring on collaboration. So many firms boast of their team player culture that it has become a cliché, but Transtrend’s view of teamwork is distinctive. “Teamwork is very important in our industry. There are always many smart people who may be much smarter than you are, at least in most areas, and not everyone is happy to be surrounded by smarter people. But team strength grows on respect and admiration for those around you; it allows everyone to excel in their own areas and to be admired for that,” says de Boer. “I joined straight after university. I like the collaborative atmosphere and shared goal of always doing the right thing and bringing quality to work. Our discussions are based on content,” says Managing Director, Joep van den Broek.

Flat hierarchy and flexible roles 

An open plan office and flat hierarchy encourage sharing of ideas. “We gain a lot from interpersonal dynamics on the work floor. If someone has a bright idea we will listen regardless of their job title,” says van den Broek. Staff can also shape their own roles rather than fitting into a mould. “In large firms, job functions can be predefined, but for us it is more important to accomplish tasks. We all focus on one strategy, and everything is aimed at that. Anyone can see how and where they add value and can carve out their own function to add the most value. From the start people can get a lot of responsibility and enjoy more freedom to define their own role,” says de Boer. 

The paradox of misfits

People need to fit in but equally some who would not fit in elsewhere can thrive at Transtrend. “The culture is inclusive for a lot of misfits, although most others who could fit in elsewhere will not fit in here. Some of us may be seen by outsiders as loners but they too like to work with others, just as chess players like to play with other chess players, so they are not real loners. Collaboration is key and we all enjoy that. We like to see some nerdiness in people, an extreme enthusiasm for something, whether it would be robots or the way they make their coffee,” says de Boer. Transtrend uses formal personality tests, but they are not standard. “We once had somebody who complained that the test was not at all like a typical test for a hedge fund. Needless to say, that person was not hired,” recalls de Boer. 

Discretionary and qualitative appraisals

So, everyone is tested in special ways, and they need to tick enough boxes to be hired, but the real test is working at Transtrend. Individual staff are not, however, appraised on any hard quantitative targets or key performance indicators such as profits, sales or execution slippage. “The firm’s performance as a whole is more important, and we appraise people on qualitative criteria, which avoids local optimizations. We hire people who do not feel the need for specific targets to make their job clearer,” says van den Broek. 

Nonetheless at the top-level, performance fee income — the ultimate measure of value delivered to Transtrend’s clients — does help to determine the total bonus pot, though individual bonuses are entirely discretionary with no formula. 

Internships 

De Boer was once an intern and Transtrend has recently expanded its internships program beyond the original internship for writing a thesis or research paper. Students can now also work as summer interns or in parallel to study. Some work in quantitative research but they could also work in administrative, operational or other market research functions. “We learn much more about and from students and they learn much more about us and working life in general. Every student can add to our corporate image, whether or not they join afterwards,” says van den Broek.

Balancing academic and practical work

Some quant shops set great store by the number of PhDs they employ, and the tally of academic journal papers authored, but not Transtrend. Most interns and hires are completing bachelor’s or master’s degrees though there are also some doctors. “If people have too much academic study they may become too distant from practical research and investing. They must prove their worth on the job and not just rely on a research paper,” says de Boer.

Going beyond academic study, Transtrend has devised an internal test to see if people are creative and imaginative enough to solve open-ended practical problems. “You can easily get higher degrees by solving problems that have a single answer, but it is harder to solve problems that have 12 competing answers,” explains de Boer.

Historically, very few hires studied finance, economics or econometrics, partly because the dominance of the efficient markets hypothesis made such graduates sceptical about identifying market inefficiencies. Now that the finance curriculum has changed and acknowledged inefficiencies e.g. around behavioural finance, Transtrend is hiring more quantitative finance graduates though most have still studied maths or physics.

Dimensions of diversity

Transtrend staff display diversity across dimensions including gender, race, religion, sexual preference and social or cultural background. “At the same time, we don’t select or report on them. What’s more important is that we can be ourselves here,” says de Boer. Rotterdam’s ethnic diversity partly comes from being a major world port, which over the ages attracted many different people for different reasons. There are no rules on religious dress, and people are open about their social background. “Whether their parents were plumbers or professors makes no difference,” says de Boer. “We hire on merit but do have plenty of diversity,” adds van den Broek.

Longer term commitments – but no lifetime guarantee 

In the early years of the company most staff stayed forever. Now, the average tenure of 12 years is still relatively high for the financial sector, but Transtrend has determined that it is healthy if people do sometimes leave and move on to another company – or even another career. “If we grow apart and develop different ambitions it may be time to say goodbye. We have learned to better manage and communicate this. Some people who decided to leave us also came back,” points out de Boer. For five years now, Transtrend has had a dedicated HR function working on personal and team development, transitions, and finding different roles within the firm. 

Efficient working hours 

The numbers and sizes of teams fluctuate over time as some grow, and others may downsize. Transtrend’s 78 staff include some working part-time though the number of full-time equivalents is still 72. “Colleagues who worked in London tell us that they worked longer hours there, but less efficiently,” says de Boer. “We think we are very efficiently organized and employ less staff than our direct peers. The number of staff has grown due to demands of governance, regulation and clients, and because IT, trading, execution and algorithmic development are all in-house,” he explains.

Dutch and direct

Transtrend’s style of communication is typically Dutch in being fairly direct and this quality is even more pronounced in Rotterdam, with a level of candour that could be shocking to English people accustomed to a more understated and diplomatic use of words. Though most Dutch people are educated to be multilingual (typically in Dutch, English, French and German) and Transtrend’s business with most clients and service providers is conducted in English, Transtrend’s internal communications are very much Dutch. “It would be very artificial to start speaking English together. It’s just easier to be more open and share all kinds of pressure and stress by speaking in your native language. This helps us to prevent mental health issues, which are unfortunately very common in the financial industry,” argues de Boer.

One office

Working from home is better suited to some job functions than others but generally people like to work in the office and pick up work-floor conversations in the one and only office in Rotterdam. “We considered opening marketing offices or trading offices in other time zones, but decided there was not a good business case. Working

at a distance is a task. A soccer team runs on the same pitch. We cannot manage the culture and team interaction from a distance,” says van den Broek. The case for local trading offices has anyway weakened because globalization and technology now allow Transtrend to trade through DMA (Direct Market Access) on exchanges globally, whereas local brokers were needed in every country when the firm started. 

One strategy 

Transtrend has only one strategy, the Diversified Trend Program (DTP), though there are various fund vehicles in different domiciles, sometimes with different risk targets. Transtrend has not set up any separate vehicles for “alternative markets” because the manager believes there is no consistent way to define an “alternative market” and would rather let one strategy enjoy the diversification benefits of all markets that are traded. “However, since non-standard markets do have a significant weight in DTP, some of our clients classify the program as an alternative markets strategy, which is okay for us,” says de Boer.

Sizeable in different trends 

Transtrend trades medium term trends and has named five trend models: breakout, risk premium, return to trend, term structure and tail risk premium, but these are not its real differentiators. “The models are just categories and not how we philosophically approach and define trend. We are not focused on different trading systems or speeds, but rather it is most important to be sizeable in different trends, and to recognise the underlying factors that drive those trends. We look at portfolio level trends and maintain a diversified portfolio,” says de Boer.

Commodities

Having sizeable positions in key trends also requires freedom to change asset class and market weights – as well as overall risk levels – in response to the opportunity set. There are no preset caps for any asset class and commodities, including a hefty weighting in agricultural commodities, have often made up over one quarter of risk. Commodities could sometimes approach 35-40% of risk including synthetic markets where one or more legs are commodities.

Creating synthetic markets

Transtrend does not only trade individual futures, forwards and equity swaps, but uses two or more contracts to create synthetic markets that might be trading a spread or other combination between two markets. These multi-contract markets can sometimes be more precisely sensitive to certain factors driving trends than the individual ones. 

Synthetic markets have reached 45% of risk and could easily go over 50%, though there is no specific target, and the definition of “synthetic” partly depends on how some trades are structured, which has changed over time. Some historical measures would have classified as synthetic some markets currently categorized as singular: “For instance, in the old days Australian Dollar versus Yen required two currency pairs and was classified as synthetic, but it can now be traded directly,” reveals de Boer. 

Real world economic, political and environmental developments as well as models and markets inform the choice of markets and the development of synthetics. “We have devised combinations of commodities and bonds to create synthetic inflation markets that have been great for harvesting related trends. Synthetics can also be created to gain exposure to longer-running themes such as Brexit,” says de Boer.

Open architecture for asset classes and instruments

Transtrend does not always view traditional equity indices or even industrial sector groups as being best suited to trend following. Unlike many CTAs, Transtrend trades many single stocks on swap. Single equities can sometimes provide a unique factor exposure to a company – or may be primarily designed to obtain commodity exposure and substitute for an insufficiently liquid futures contract. “The macro team meets every two weeks to discuss potential developments and new market additions. Lithium is one example of a market rejected due to not having large and liquid enough futures, but equities of lithium miners were added to get exposure,” explains de Boer.

The breadth of instruments and synthetic combinations available to implement ideas means that many trends can be approached from several angles. “An oil trend could be directly expressed in at least three ways: the commodity future itself, energy equities, or certain currencies such as Norwegian Krona that are sensitive to the oil price. And any of these could also make up one or more legs of synthetic markets,” points out de Boer. Dedicated traders not only have some discretion over the timing of execution, but they can also have some choice over markets within a family of related order advice. “Asset class definitions in themselves are less relevant. We want to find the best way to express a view on trends. Traders have some freedom to decide where and how to implement,” says van den Broek.

Staying diversified

Diversification is crucial to retain room for manoeuvre especially amid crisis situations. “When there are larger market moves, we do not have to trade but we are willing to trade. When Russia invaded Ukraine, some parts of our portfolio, such as electricity, metals and oil, did very well, while currencies in Eastern Europe lost money. At the portfolio level we did well and were able to keep the Eastern European currencies and let them recover,” explains de Boer.  

Portfolio diversification also allows the portfolio to maintain a reasonable level of volatility. For instance, Transtrend did not dramatically downsize the book in March 2023, and was able to swiftly recover losses. The resilience came from the functioning of the team. “Team collaboration – not second guessing but trusting one another to do what is needed – helped April 2023 profits to outweigh March 2023 losses,” says de Boer. 

Execution and liquidity provision

“The shift from floor to screen trading was a big change. More and more money is being pushed around in inflexible ways, using many effectively similar execution strategies,” says de Boer. Execution efficiency is an ongoing research project and Transtrend believe that they can earn a liquidity premium for liquidity provision in execution in a way that sounds quite paradoxical and counter-intuitive for a trend follower. Transtrend will often be selling a fast-rising market such as cocoa in early 2024 to maintain its risk weighting and portfolio diversification. Similarly, it could be covering part of a short in a rapidly declining market for the same reason. The majority of trading volumes are devoted to risk management rebalancing rather than entering a new trade or fully exiting a trade. “We sometimes need to explain to exchanges that when we sell at a higher price and prices subsequently come down, they should not adjust those prices because it rewards those responsible for the market disturbance at the expense of those that are active and helpful in correcting the market when prices are disrupted. Part of our trading style is to receive a liquidity premium when others are forced to pay it,” says de Boer.

Transtrend trades 24 hours a day on exchanges globally. The highest frequency data is used to inform execution analysis, although Transtrend is not in the speed race of HFT. “The big advantage is that we have time on our side. We can be patient in waiting to execute,” says de Boer.

Exchanges and engagement

Over the years, Transtrend has engaged with multiple exchanges over their practices for execution, settlements, orders, cancellations, product characteristics and so on: “We have discovered that some exchanges are more reliable than others,” reveals de Boer.

After the London Metal Exchange (LME) cancelled some nickel trades in 2022 Transtrend ceased trading and has only just resumed after two years of private dialogue and public comment. Transtrend’s thought leadership papers argued that cancelling all trades over an entire session was bad for both financial and physical participants. They further argued that opening the market implied that LME had trust in the prices. They suggested that rather than retrospectively cancelling trades, the LME could have chosen other options within its rulebook, such as announcing that the settlement price would be capped at the previous day’s level. 

Operational complexity

The number and range of individual and composite markets traded is only one of many variables that increase complexity. Behind the visionary ideas and imagination used to create synthetic markets in ongoing front office research lies a great deal of nitty gritty work in the back and middle offices, data and IT, which all sit on the same floor. “Operational complexity at multiple levels of the strategy or fund should not be underestimated, and it takes a great deal of work and dedication to make things work,” says van den Broek. Careful judgment is constantly needed to adapt to operational challenges. “Operations cannot be automated in an easy plug and play way. The human element makes the difference. We need humans to adapt to continuous change in business and market conditions,” he adds.

AI and Gen AI cannot automate operations nor the investment process. “AI is just another tool, which works very well for some tasks but not for others. We may use AI to type text, but we do not want to participate in marketing hype about using it for research,” says de Boer. Research starts with people that wonder and ask the right questions.

Running to stand still

Systematic trading has many positive attributes, but it can become inflexible. “When systematic trading becomes automatic trading, you lose flexibility. Flexibility has become a bigger challenge over time. We need to be flexible instead of rigid. We must keep changing just to do the same things. This is not just about adding models and markets, it is about development and mentality,” says van den Broek.

All aspects of the business can continue to evolve. “We don’t have an agenda of 100 research items next year. Big picture we will be researching markets, market impact, trading systems and execution, but we look at it all holistically,” says de Boer.

One thing, however, seems not to change: in all these areas, Transtrend will be thinking independently and may well challenge consensus views.