Strong opportunities for Europe’s start-ups
Interview with Kevin LoPrimo – “We provide an institutional service to a market segment that doesn’t typically receive such a service from the bigger, top tier prime brokers,” states Kevin LoPrimo (pictured), head of hedge fund services at London-based Global Prime Partners, an award-winning boutique prime broker.
That market segment, predominantly, is hedge fund start-ups and small managers. Despite global macro headwinds, from what LoPrimo has been seeing this year Europe’s start-up market is as strong as ever. Global Prime’s position is to provide the go-to platform for these managers, who maybe don’t have sufficient working capital to be able to work with larger, more established prime brokers.
“The start-up space is growing quite rapidly. It’s an exciting time. I’ve been working in this industry for 30 years and I’d say this is as good a time for start-up numbers as ever, it’s just that they’re launching with smaller AUM,” says LoPrimo. There’s no denying that capital raising is tough today for new managers. Getting one’s voice heard is hard unless the manager has come from a leading prop desk and has a stellar resume. LoPrimo observes that whereas, around five years, the average manager was launching with between USD50-100million, today that figure is more like USD10 to USD20million or less.
Partly, this is because there are so many hedge funds out there. As the market gets more crowded, the ability to launch a unique strategy, and potentially attract numerous investors, diminishes. The whole point to Global Prime Partners’ platform, however, is to ensure that as the managers they work with – no matter how small – grow and succeed, a long-term symbiotic relationship is established, even if the manager then decides to move on.
“As some of our clients grow to the point where they’re running USD100-200million in assets they might want to work with a bigger firm. We understand that. The idea of our platform is that we will continue to provide them their outsourced operational support in the same way we are now, in addition to them getting the direct access to a big firm.”
When asked whether higher costs of doing business might put off potential new hedge fund managers coming to market, LoPrimo agrees that they are getting squeezed but doesn’t believe that service providers are necessarily over-pricing themselves:
“Firstly, consider the bigger prime brokers. Usually they will set a monthly minimum revenue target of between USD20-50K for each client: we don’t. Our minimum revenue target is much lower. A lot of the other service providers have also come downstream on cost: law firms, compliance firms, fund administrators. For instance, five years ago the average start-up was probably paying USD350K or more to get up and running, whereas we have many funds that have set up for a cost of USD75k or less.”
Given that Global Prime Partners has become widely regarded as one of the best networked firms for start-ups and small managers, LoPrimo says that more institutions are starting to approach them: “We have a few family offices interested in tracking some of our managers now.”
Around 85 per cent of our managers are equity-focused, and with institutions now starting to raise their interest, coupled with more managers coming to market, this is a propitious time for the firm:
“Our pipeline is growing quite rapidly. At the moment we are onboarding between two and five new clients a month, and based on what we’re seeing with the pipeline I believe that number will continue to grow.”
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