[ I N D E P T H | P R I M E B R O K E R A G E ]
“ There ' s been a pretty comprehensive review by regulators of risk practices done by all of the primes , including the four major non-impacted primes ,” says one head of prime services . “ And there ' s recommendations that have come out that will need remediating .”
“ There has also been a renewed industry focus on transparency , and the importance of relationships .”
DAN CHILDS , HEAD OF EUROPEAN PRIME SERVICES SALES FOR EMEA , JEFFERIES
What the client wants Of course , there is no standard profile for a prime brokerage client , but some of their headaches , challenges and desires are consistent – namely , a need for stability and financial resources . Against a backdrop of a difficult environment , funds will not want to focus on anything they don ’ t see as core , so partnerships with prime brokers and other service providers alike are incredibly important . Therefore , safety and security in terms of knowing those partners will still be there for them is crucial . In the same line of customer service , immediate responses are vital , as is understanding a fund ’ s needs for growth and scale . This is probably nothing new , but still worth pointing out . “ Hedge funds are , by and large , trying to do two things : perform for their investors and grow their businesses ,” explains Childs , of Jefferies . “ There is a limit to how many relationships a hedge fund manager can effectively maintain , so managers look to work with partners that can deliver the highest value across these two areas .” To be able to offer a full prime suite is also vital and subsequently we are seeing primes aspiring to move into new asset classes to cater for demand . Almost every prime we spoke to in the mid-tier outlined plans for expansion in one way or another . Technology remains an area of focus for all primes with some significant investment going in , and warranted . Newer – and more boutique providers – are looking to point out how they benefit from not having the legacy technology that can hamper larger banking institutions . “ We ' re building an independent prime broker with a real focus on providing that core back-end with experience and technology ,” adds Clear Street ’ s Pento . “ Our core mission is improving access to capital markets for everybody . What that really means is we build the single platform across all different asset classes , geographies , and for all types of clients . “ Today it ' s a bunch of really old legacy technology platforms strewn across the industry . We took the ambitious goal rebuilding all that infrastructure and that started about four years ago . We ' ve made a lot of progress .” There is also demand for new sectors like digital assets and cannabis , something smaller primes are able to cater for , while SPACs – despite talk of their demise –
BIG NAMES ON THE MOVE There have been multiple role changes at the top of the prime brokerage world so far this year ( while of course the majority of the Credit Suisse team have landed new jobs ), here are a handful of the moves we know about .
Ashley Wilson , BNP Paribas > UBS John Jenkin , JP Morgan > BNP Paribas Robert Sackett , JonesTrading > Mirae Asset Management Jorge Hendrickson , Opus > JonesTrading Mark McGoldrick , Cowen > JonesTrading Michael Roberts , Bank of America > Copper Mark Aldoroty , Pershing > Jefferies John Dlubac , Credit Suisse > Barclays Brandon Mulvihill , Jefferies > Crossover Markets Group Anthony Mazzarese , Jefferies > Crossover Markets Group have been a constant for the past two years in the fund services world . Morgan Stanley ’ s Rubin describes how the organisation pivoted to support clients with SPACs . “ You had the SPAC craze that for the right clients , with the right margin terms and the right pricing , we were able to stretch to and take care of . “ But again , we stay to our core niche , which are global equity fundamental long-short clients , all touch points when it comes to the platforms , multi strats as well as the quantitative and stat arbs . This well diversed client base allows for maximum optimisation and efficiencies to be achieved while being able to throttle our alpha generating offerings to the right client at the right time depending on their needs and environment we are in . Like investing , diversification is a key to our overall strategy and success allowing us to be consistently considered best of class in the past , present and hopefully future years to come ." Providers are certainly putting the time and money into the prime brokerage business , which has been propping up investment banking revenues of late and motivating some of the aspiring players in the market to invest in new services and bolster their existing ones , with cap intro an area mentioned by many . The exits and the drama have reshaped how things are done , and who is doing what , but the opportunity out there is ample . Small funds need servicing , large funds need the security , and there are plenty of primes out there willing to cater for each . It ’ s a new world for all , with the historic risk models being adapted and new entrants armed with technological advantages ready to take on the behemoths . In the coming years we will certainly see new trends , regulations and – most likely – a reshuffling of the pack when it comes to the largest and most influential players . But one thing is for sure , and that is that from March 2020 this whole industry began on a journey of seismic change . And there ’ s plenty more road to travel .
26 Global Custodian Fund Services Annual 2022