Thousands of miles from Copacabana Beach, BTG Pactual is doing things a once-small banking partnership from an emerging market shouldn’t be able to—managing a diverse group of admired hedge funds. Yes, the firm’s successful foray into asset management was partly down to fortuitous timing, but high above Manhattan’s streets, COO Dayna Corlito has helped it go global with something else: dogged technology precision. By Tim Bourgaize Murray with photos by Amy Fletcher
From the recently completed World Cup and upcoming 2016 Rio Summer Olympics, to boom-and-bust growth and local street protests, it would be an understatement to say Brazil’s having a busy few years. The country, always known for its beauty and joyousness, has been a constant focal point of international attention, which lately has also made it easy to gloss over one of Brazil’s more practical bright lights: its growth in finance.
Brazil’s capital markets, tiny by comparison to its population, were once known as a spot for the global banks to cyclically come and go (they still do) and for the occasional hedge fund manager to make an exotic bet. Today, Brazil is a regional financial hub and boasts several homegrown powerhouse firms of its own. Perhaps none has been more aggressive than BTG Pactual, which quietly boasts one of the world’s largest alternative asset management portfolios, and the company’s shiny New York space confirms as much—hinting of clean, Oscar Niemeyer design inspiration as much as it does of a traditional trading floor with its tangled wiring and screens.
Of course, veneer is the easy part of growing a business fast. The hard part is outworking everybody along the way, not only with well-developed investment strategies, but also with effective infrastructure underneath. With each step in BTG Pactual’s quick expansion, Dayna Corlito, COO for the firm’s global hedge fund unit, has put internal technology, external relationships, and business processes through their paces, always searching for the right mix, or slightest refinement, as requirements change. She knows no other way.
Just One More
An accountant by training, Corlito started her career with KPMG, but after 16 rounds of interviews, landed at Goldman Sachs in 1996, where she ended up supporting the firm’s newly acquired J. Aron commodities arm in both New York and on rotation in London. It wasn’t easy, she remembers—the Goldman gauntlet lived up to its reputation. One afternoon a few years on, an old friend from KPMG called, imploring Corlito to interview at UBS for a business manager role at the Swiss bank’s mortgage-backed securities (MBS) desk.
“I quickly agreed, and he asked the interviewers if they could see just one more candidate, knowing they had to make a hire that same day,” Corlito recalls. Fate took care of the rest, and she jumped in. “It was a challenging switch, because all of a sudden I was up in the front office. The desk at the time was about 125 people, but UBS wanted to get much larger, with bankers, traders, sales, and transaction management teams, and in the span of a year, it got to around 350,” she says.
“All of a sudden I was up in the front office. The desk at the time was about 125 people, but UBS wanted to get much larger, with bankers, traders, sales, and transaction management teams, and in the span of a year, it got to around 350.”
As the desk’s only business manager—and one of the few women on the staff, period—Corlito wanted to prove herself immediately, and had a powerful ally in Dave Martin, now a partner and co-chief investment officer at BTG Pactual. “I needed them to see me as somebody who was legitimate and could help them, but I also made sure they knew I liked sports, that I was part of the team, rather than a target,” she says. As a result, Corlito was in a fantasy football league before most people were even familiar with the term.
As for opportunities to deliver, those appeared immediately and lasted throughout her five years at UBS. At first, the bank had securitization, secondary market trading, as well as mortgage banking, but not origination. While most banks of UBS’ size would go out and simply buy that kind of operation, UBS instead entrusted Corlito to help manage building one out organically, gradually adding customized, client-driven underwriting capabilities to supplement its various asset types: agency and non-agency mortgages, asset-backed securities (ABS), “scratch-and-dent” distressed debt, and collateralized loan and debt obligations (CLOs and CDOs).
In the aftermath of the 2008 financial crisis, the bank was forced during its deleveraging process to divest some of those same assets, and worked with the Swiss government to create a separate structure that would adhere to strict requirements in auctioning them off. Corlito served as COO for that entity as well, and she says both experiences helped her understand technology’s operational importance, even if witnessing the rounds of layoffs connected to the divestment period was, in her words, “horrendous.”
“I knew then, obviously, that it was a finite thing for me, too,” Corlito says.
Orders and Progress
As she considered her next steps, a boutique Brazilian investment bank, then known simply as BTG, just happened to be doing the same. The bank’s CEO, Andre Esteves, had founded a similar shop, Banco Pactual, in the early 1980s, which was sold to UBS in 2006. Only two years later, after briefly heading up UBS’ entire South American operation, Esteves left with a group of senior staff to form BTG. When the Swiss bank’s post-crisis fire sale got into full swing, Esteves ultimately got his first creation back, too, reacquiring UBS Pactual in 2009 to complete the firm’s current iteration.
With an infusion of $1.8 billion from international investors the following year, and needing a place to invest its partners’ own equity in the firm as stipulated by its unique partnership structure, BTG Pactual resolved to flesh out a dedicated asset management arm that would operate on a more global basis than its Latin American broker-dealer. For its hedge funds unit, the firm had the trading talent already at hand, but needed a system, and a COO to run it. Despite her previous connections from UBS, Corlito insists she was far from a shoe-in. “Brazil still didn’t know me at all, so when I was brought on I just felt incredibly fortunate,” she says.
Corlito was initially assigned to building out the new entity’s US-based broker-dealer, but just like at UBS, she quickly moved onto the bigger challenge—implementing a trade order and processing platform that could handle the full range of assets in BTG Pactual’s global hedge funds, which today include diverse strategies across global equities, interest rates, and credit. Mainstay provider Sophis—now part of the Misys stable—was chosen, with Calypso, which the investment bank now uses, and Murex as the other finalists. But every tool in the vendor’s arsenal was required to make it fit.
“We were one of Sophis’ first truly complex buy-side clients, and they were very quick on speed to implementation. We were up and running within a month,” Corlito recalls. “Since then, a ton of customization has come into play. Some US mortgage types they weren’t familiar with, so we used a toolkit to build in automation for factor updates, coupons, and principle losses. For Latin America, there were things that were unique to Brazil like IOF taxes on financial operations, and Mexican swaps. And even certain Eastern European products we have exposure to will have different day-count and accrual conventions. It’s not an easy system, but five years on we still use them as our main platform for both trade entry and risk.”
Since then, Corlito’s team of 45 has diversified across geography, particularly adding capacity in London under deputy COO Neal Sadler, whom she is grooming as her successor, to help handle the firm’s increased utilization of Ucits fund structures, and move some reconciliation functions several hours ahead of New York and Rio. The team now also broadly manages instrument on-boarding, trade file creation and integration, and exceptions tracking, which Sophis personnel once handled, in-house.
On the mortgage side, the firm continues to add new independent pricing information—from Intex, Loan IQ, 1010Data, Markit, Moody’s, and Riskspan—to a proprietary database maintained by its quantitative research group, which uses that data to essentially do much of the legwork UBS’ desk once did, but with far fewer staff. The desk’s data spend alone now runs as high as $1 million per year.
Meanwhile, increased regulatory presence and electronification around fixed income has proven to be Corlito’s team’s biggest challenge. The key was making a very early start.
“With mandatory clearing, we were very focused on the March deadline” for Dodd–Frank-related changes to how certain swaps are traded, she says. “While at first we thought we would just focus on our active funds, we actually brought all of them on at once, instead of waiting for the second deadline in June. We were on the issue five or six months beforehand, which is good because understandably, the service level from the prime brokers fell off significantly leading up to June because they were inundated, trying to onboard everyone else. We have several prime brokers, so for our primary futures commission merchant (FCM) we chose Citi—we really liked the technology behind Citi Velocity. For swap execution facilities (SEFs), our rates and mortgage traders were already familiar with Tradeweb, so we went with them and Bloomberg for credit, and are considering additional ones, as well.”
While several SEF aggregators have been doing the hard sell, Corlito says the firm is waiting for volumes to pick up and European clearing mandates to come online, before making a selection. Reporting has proven a different story, however, where Corlito argues that utilities and third-party providers have already made great strides. BTG Pactual uses Markit’s Trade Manager and MarkitWire services, as well as the DTCC’s ICE Link, with UniVista for its UK-based reporting, and Citco—its administrator—for Forms PF and PQR.
“There’s only so much the sell side can do,” she says. “In terms of clearing and tools to view counterparty risk, Markit and the DTCC have really stepped up, and the added benefit is that, because we have to report statistics for what is cleared and un-cleared anyway, we can use them and work with our FCMs and administrator to get data on what we’ve incurred in terms of actual costs executing one way or another, which we store in Sophis, and break that down for the desks.”
She expects this work will prove beneficial, too, if and when fixed-income trading venues expand their electronic offerings, to potentially include select mortgage types.
All of those moving pieces have made the last few years feel like a whirlwind. Corlito makes her escape by volunteering with an animal shelter near her home in Eastern Long Island, horseback riding—she’s been an equestrian most of her life—and setting time aside with other similarly busy friends a couple of times a week, no cancellations allowed.
Then there is the added benefit of working off-site at the firm’s home office in Rio, a stone’s throw from its famous beaches, and where quite a bit of market activity is going on, too. Indeed, the firm’s footprint in Latin America and abroad has grown significantly, with the 2012 acquisitions of brokerage firms Celfin Capital in Chile and Colombia’s Bolsa y Renta, as well as this year’s purchase of BSI—the Swiss private lending arm of Italian insurer Generali—that is still subject to regulatory approval.
One consequence of that expansion is the firm’s establishment of an enterprise data management (EDM) unit. Despite the asset management arm running as a standalone entity, some operational team functions have been integrated into the new unit, in addition to the credit and market risk data it already delivers back to Brazil for firm-wide exposure. Another change initiative is a local infrastructure refresh, which has taken advantage of the growing number of major technology providers setting up shop in Brazil and elsewhere in South America to replace proprietary systems that are, in some cases, as old as Pactual itself.
However, one thing that Corlito says hasn’t changed is the relatively few women in finance, especially at the C-level. And on that front, the COO is quite candid: “Even in our firm, we’ll go over the stats at the group COOs’ meeting—we’re only at 25 to 30 percent women across the whole company,” she says. “Every woman’s situation is unique, but personally, I don’t like calling out the fact that we’re a minority. Starting out at Goldman was a real struggle. At UBS, I was the first female manager our desk had ever had, so I expected the same. Dave [Martin] really set the tone at the top—‘Respect her, work with her.’ The message was out, but plenty of women don’t get that kind of opportunity, and it’s discouraging. I tell this to friends with daughters—they can be successful in finance, but if you want to have a family early on, it’s very difficult, and ultimately that’s why you don’t see a lot of women yet in leadership roles. The hours are long; it’s not a balanced life. For me it was a choice, and I picked my career.”
That choice hasn’t disappointed, however. And whether in English, Swiss German, or Portuguese, neither has she.
Dayna Corlito Fundamental Data
Name: Dayna Corlito
Title: COO, global hedge fund division
Education: Bachelor’s degree in accounting from LIU Post
Number of Staff: 45
Assets Under Management: BRL190.7 billion ($83.2 billion) in overall global assets under management, including BRL22 billion ($9.6 billion) of global hedge funds
Hobbies: Animal welfare and training, shelter volunteer, horseback riding, viticulture
Technology at BTG Pactual
Biggest tech challenges: Balancing interests of global asset management in relation to firm-wide technology and infrastructure enhancements. There isn’t a one-size-fits-all solution for both.
Most notable technology accomplishment: Bringing Sophis expertise in-house to our asset management operations project team to significantly reduce reliance on our external vendor for trade file creation and integration, and ad hoc requests and infrastructure enhancements that do not require code changes.
Technology under evaluation: Automatic Swift interface for payments processing and trades—first for Ucits and secondarily for hedge funds.
IT wish list: Proprietary build-out of a full-scope order management system (OMS) to sit on top of Sophis.
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