The notion of what it means to be a prime broker is changing. Hedge funders are looking for solutions that go beyond the usual services such as trade execution and clearing, capital introduction, securities lending and margin finance. These solutions extend to middle- and back-office support, compliance support and outsourced trading services.
With respect to the latter, this is something that Cowen Prime Services are seeing significant interest in, not just among emerging managers wishing to reduce infrastructure spend but seasoned managers with an eye on improving business efficiency.
"What is becoming more evident to us is that hedge funds who remain with the bigger primes are looking to avail themselves of other services that their primes are not providing them," remarks Jack Seibald (pictured), Global Co-Head of Prime Brokerage, Cowen Prime Services. "Managers are looking to more efficiently deploy their resources and still avail themselves of a high caliber service. On an outsourced basis, we have an experienced team and technologically advanced infrastructure that can serve as a manager's buy-side trading desk."
Outsourced trading is a key differentiator within the boutique prime space. "Everyone is focused on being as productive as possible, whilst at the same time maintaining the highest standards of care. By outsourcing trading and financial reporting etc., to a firm like ours, investment managers are able to achieve that," says fellow Global Co-Head, Mike Rosen.
To bring its prime brokerage service to a wider community of managers, this summer Cowen hired Kevin LoPrimo as Managing Director, Head of International Prime Brokerage in London. The aim, says Rosen, is to replicate the introducing broker model in London, offering European hedge fund managers all the prime brokerage services that are necessary.
Indeed, the platform has just gone live and like in the US, will offer securities lending and margin financing facilities, as well as custody and trade execution services, both cash and synthetic.
"Outsourced trading is being well received not just by managers but also by the bulge bracket primes. They like the notion that they know the counterparty to the trade (i.e. the client) at the time of the order. Plus, it is a full electronic audit trail from the time the trade is initiated to being filled and reported. It's a solution that is serving two masters – the manager and the executing broker who knows trade-by-trade the revenues being generated by each client," explains Seibald.
Another 'value-added' service that clients do not necessarily get from the bulge bracket primes is outsourced middle- and back-office support, allowing managers to reduce their infrastructure overhead by paying for solutions at a variable cost level.
"With the IB model that we run, the manager still has the counterparty relationship and asset protection with a major bank. Yet at the same time, the manager works with a smaller, nimbler more client-serviced organisation that has the capabilities to provide many of the services that a bulge bracket prime would not offer, on an a la carte basis. You don't have to use our outsourced trading solution, or our middle- and back-office solution, but they are there if you want to," explains Seibald.
This notion of providing fund managers with the financial stability of a large bank as the counterparty, coupled with Cowen Prime's service offering that provides tailored solutions, is an attractive one: especially to smaller and emerging managers who wish to limit their infrastructure spend.
