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Paul Covello

With more than two decades of buy-side hedge fund trading experience—and the past 10 years building and managing global trading desks—Paul Covello has dealt with every type of asset class and product in the industry. He began his career as an industrials portfolio manager at Exis Capital before moving on to accept a position at Pequot Capital, a $12 billion hedge fund. He spent five years there as a trader, servicing multiple portfolio managers for the Emerging Manager Platform and the Core Fund. Paul then became the director of trading at JAT Capital, a $3 billion technology-focused hedge fund, and later, the director of global trading at Cramer Rosenthal McGlynn where he spent six years trading all sectors with peak assets of $15 billion. His primary focus included all aspects of compliance, risk, best execution practices, trade cost analysis, MFID II/ brokerage reporting, and portfolio construction.

In September 2019, Paul was named managing director and global head of outsourced trading at Jefferies, a multinational independent investment bank headquartered in New York City. The firm provides clients with capital markets and financial advisory services, institutional brokerage, securities research, and asset management. Paul sits within the Prime Services Group within the Equities business, with a focus on global equity trading, servicing existing clients, and developing new initiatives to expand the firm’s platform. He currently manages a growing team of traders across Hong Kong, London, and the U.S., serving over 100 clients globally. Jefferies Outsourced Trading Desk (OTD) strives to act as an extension of its clients’ investment processes, aligning and executing a trading strategy consistent with each firm’s trading vision. The OTD also collaborates with portfolio managers to provide global broker-agnostic best execution in accordance with urgency of trades, liquidity profile, and intraday directional views.


Notably, clients utilizing Jefferies’ OTD allows access to the firm’s other Equities capabilities, including its global equity research product, with more than 2700 companies under coverage, as well as the firm’s capital introduction services.


Paul recently met with us to share more about Jefferies OTD as well as its services and scalable solutions.


What is OTD and what is the genesis of this idea and service?


Outsourced trading really rose to prominence in 2014 and 2015. As the hedge fund landscape changed, many funds began looking for ways to save costs internally while keeping all the components of the traditional hedge fund intact. One way to manage expenses is to effectively outsource one of the biggest expenses—trading costs. The trend in outsourcing, however, ranges beyond trading as COOs and CFOs are also commonly outsourced.


What differentiates your desk from competitors?

Jefferies OTD offers clients a unique offering of experienced buy-side traders to act as an extension of our clients’ brand presence in the marketplace. Our desk complements the firm’s prime brokerage offering for emerging managers and established buy-side institutions, including capital introductions and business consulting. We also provide clients with broader access to the Jefferies Equities franchise as well as the equity research and corporate access resources offered on our platform.

Why did you choose Jefferies? 

We—Jefferies—began building the business in 2016 and launched the desk with a handful of clients. The goal was to create an institutional and international offering that would service our global client base. We were looking to build a team of entrepreneurs that wanted to help build and grow with each client. My team mostly consists of former buy-side traders with direct and significant hedge fund experience, and we’re able to call upon that firsthand experience when servicing our clients, so we really tout ourselves of being an extension of our clients’ trading desks because this is what we’ve done throughout our careers. This is what differentiates us.

Who can benefit most from your OTD services?

Portfolio managers launching hedge funds benefit from using our desk because our expertise allows them to concentrate on generating alpha for their investors and to be nimbler with investing. If they have a trader, it allows them to have a larger breadth of touchpoints to the street, and they can use OTD to complement their internal trading desk. Also, an established trading desk looking to add an additional trader can utilize the Jefferies OTD desk to expand their breadth of expertise and information from the Street.

What are the benefits of outsourced trading?

OT allows portfolio managers to focus their time on investing instead of execution, and it provides cost savings by eliminating the fixed cost of a trader. Another benefit is execution and commission management. Jefferies OTD executes across asset classes globally while managing the commission wallet for our clients. Commission management is monitored through a research and execution budget. With recent changes in market structure and the implementation of MIFID II, we provide and monitor broker-agnostic best execution, and we interact with more than 100 brokers. We also focus on best execution, providing access to a global network of brokers and liquidity venues. We prioritize natural blocks using all available liquidity venues, manage execution style between high touch and low touch based on a portfolio trader’s alpha profile, and leverage Trade Informatics® transaction cost analysis (TCA) tools, which are fully integrated with our OMS. TCA reporting is available monthly, quarterly, and annually on a per-client and aggregate basis, including broker scorecards and rankings. Last quarter, TCA analysis across our client base showed that we performed 18bps better than expected for our clients.

What are the scalable solutions of outsourced trading?

We provide full outsourced solutions for emerging managers as well as established funds and family offices. Jefferies OTD can act as a client’s sole trading center and a seamless extension of its investment team. For supplemental solutions, our desk augments a firm’s existing desk for back-up trading capabilities—overflow, travel schedules, vacations, and sick days. We also offer anonymity. When called upon, our OTD veils clients’ identities from the Street to provide them with access to anonymous liquidity when initiating or exiting sensitive positions. For multi-manager platforms, we enable asset managers with multi-PM teams to segregate their execution processes and avoid potential conflicts of interest while minimizing internal personnel costs.

Where do you see the OTD business going, both in general, and specifically Jefferies’s role in this area?

Jefferies was one of the first banks to really institutionalize this business, and over the past four years we’ve truly been able to grow and mold the business to fit managers of all sizes, from emerging managers to the billion-dollar firms. The concept of outsourcing is only going to grow. The hedge fund landscape remains very competitive, and firms are going to keep looking for efficient ways to scale their business.


What drives you, and what do you enjoy most about your work?

I enjoy being part of the entrepreneurial spirit of the Jefferies organization. We aren’t bogged down by excessive bureaucracy, which allows us to listen to clients’ individual needs. We work tirelessly at providing a trading platform that encompasses the collective needs of clients. This is not a “trading for the masses” platform. Our clients come to Jefferies when they want a trader who thinks and acts like a member of their internal team. This is rewarding and drives me to continually improve, build, and be the best OTD platform.


Paul Covello

Managing Director, Global Head of Outsourced Trading

Jefferies, LLC