CEO @ STOXX and Head of Deutsche Börse Index Services
After working for several decades in different parts of the banking, hedge fund and investment management world, Andreetto learnt that the only way to create the best investment solution was to innovate and try to shake the trees of traditional asset management. It was a strategy he learnt at Harvard Business School, and one he applies every day when it comes to using smart data to create the next innovative indices.
Ahead of his speech at the Inside ETFs Asia event in November, Andreetto talked to Jobs In ETFs about the importance of challenging the status quo, thinking about managing people in the same way as managing an investment portfolio, and the need to always remain intellectually curious.
Jobs in ETFs: How did you get into the industry and what motivated you to stay?
Andreetto: Before joining STOXX, I spent 15 years in investment banking – in management, production, sales and trading – and then another two years at an alternative investment manager in London focusing on business development. Hedge funds took the game to a different level, managing big data and using quant investment models already back then.
When Deutsche Börse approached me for the index business, my first reaction was, ‘That’s kind of boring’. I thought, index provider focus on market-cap weighted solutions when the world is somewhere else. But I did some research and realized, the two worlds were converging and changed my view in two aspects.
First, the use of big data was coming into smart beta solutions and the leverage of neutral and independent platforms like an exchange or an index provider meant the adoption rate of some of those solutions was accelerated, compared to a closed proprietary solution that an asset manager could provide.
The second realisation was in terms of a positive regulatory framework. As an index provider we develop and launch rules-based, transparent and liquid strategies, offering efficient ways of getting exposure with requirements already in line with the priorities of the regulators.
JE: And what was your exact path into finance?
Andreetto: I have a quant finance background. During my undergrad at Bocconi University in Milan, I was studying principles and stochastic components applied to the financial markets, which I find fascinating. Now everyone is talking about AI, neural networks and big data. I used some of those techniques more than 20 years ago in my graduation thesis. The basic maths hasn’t changed. The difference now is that computers are so powerful that things which took us a couple of days to calculate now take 30 seconds. These are proven mathematical and stochastic theories that have been around more than 50 years. Based on the pure calculation power, we see the convergence of big data with investment strategies.
JE: What was the biggest challenge or uncertainty in your career?
Andreetto: When you move, you’re always taking a risk. And the question is, is the risk you’re taking justified or not?
If you look at my decision to join STOXX and Deutsche Börse, my risk was quite specific. I was going from the global investment banking world to work for a hedge fund in London, funded by a group of Goldman Sachs professionals, to moving into a German infrastructure player with a strong technology angle. On the other side, Deutsche Börse is one of largest market infrastructure provider in the world and has fantastic reputation for innovation. I took a bet but it was hedged in terms of career risk.
Having worked for big global organisations and having moved to the buy side, I learnt a lot about the business and about myself. I know that I can directly contribute to the business but also to the processes as well as managing different aspects of the value chain.
JE: You also went to Harvard Business School. Should people entering the industry still take that traditional route?
Andreetto: It’s a very interesting question. As I said, I have a quant background. What I felt I was lacking was general management experience, which you don’t get in finance. If you work in finance for 15 to 20 years, you become a super specialist and you manage other specialists. You don’t have a proper view of everything else as you’re in your niche.
HBS allowed me to broaden my horizons in terms of challenging myself and understanding there is nothing that cannot be changed. I really applied what I learned there in our business. I find myself in the sweet spot as index providers are disrupting the active management industry every day by using big data and creating passive solutions.
Even if it looks like a traditional route – doing your undergrad, working and then going to HBS – post-graduate education is changing. The beauty of the top schools is that they are very close to the disruptors in the industry. There is this ecosystem that rotates between academia and the industry. We need to do this more in finance, and we embrace that at STOXX. We are going for open architecture on data and research, our research team works with clients and universities and we create the best possible solutions knowing we won’t be the only owner of those solutions. We share the benefits.
JE: What other advice would you give to people starting out?
Andreetto: When you start your career, your analytical skills are a big component of value that you generate. Eventually, your qualitative skills progress and take over. By qualitative I mean a combination of understanding the clients, steering an organisation, motivating people and taking tough decisions.
Moving into general passive investment means being able to shake the trees. That’s a soft skill. But you need to challenge the status quo.
JE: It’s not always easy to do that, especially if you’re new and not so confident?
Andreetto: The people we are hiring at the moment are willing to challenge. At STOXX and Deutsche Börse we want people who can create a prototype in a weekend or a day. It’s not about having the ultimate solution, but having a solution we can take to market for testing, because we are at the frontier. By definition we are trying to do the best every day, but it’s really down to whether we have pioneers.
JE: Is it easy to spot them?
Andreetto: You need to manage talent the way you would a portfolio. Deutsche Börse Group’s Market Data and Services division recently took on 20 data scientists; some come from university, some have computer science and big data background but limited experience in finance. You have to manage that: being able to know how to leverage whom, and to create the level of recognition within the organisation that everyone is bringing something different to the table. Without specialisation it would be difficult to differentiate yourself.
JE: It sounds like people entering the industry now will have to be proactive and carve out a route for themselves.
Andreetto: It’s all about the convergence between financial and quantitative/engineering backgrounds. If you take the best data scientist who doesn’t understand the economic theory, it won’t help much. Being able to connect the two worlds is extremely important. And being able to connect them in an objective, transparent and reliable way becomes even more important.
I believe the days of going to a very good university and then spending 25 years at a global investment bank are over. There is not one common path anymore. You can take an undergrad in mediaeval history, a computer scientist, someone who worked at Google and each of them will all add value to your organization: diversity is extremely powerful.
Be intellectually curious and don’t just sit on it and get comfortable. Things are going to change anyway so make sure you have the right skills to face an uncertain future.
JE: What will you be speaking about at Inside ETFs Asia?
Andreetto: At the HK conference we will focus on the shift from active to passive, and why that’s relevant and a long-lasting trend. The reasons for this shift are obvious: it is driven by the fact that passives are very cost-effective and efficient. It’s also driven by the availability of tools to get those exposures.
Second, we will talk about the ability to create different types of solutions, like ESG, factor investing, thematics and so on, which are purely predicated on being able to leverage data in the way an active manager would, but instead of one person trying to buy and sell securities, we have a machine analysing real time everything that’s going on. We have a more robust framework compared to an active manager.