[ I N D E P T H | P R I M E B R O K E R A G E ]
( SEC ) and Financial Stability Oversight Council ( FSOC ). By using derivatives , Archegos did not have to disclose its stakes in companies ( while the bank counterparties had to disclose their positions ).”
“ 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 .”
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
“ We ’ re not going to give false expectations to our client base . We ' d sooner say ‘ no ’ when we know we ' d be putting ourselves and the client at risk by saying , ‘ yes ’.”
GERRY RUBIN , MANAGING DIRECTOR , PRIME BROKERAGE , MORGAN STANLEY
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 – 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 .
56 // TheTRADE // Q4 2022