French bank Societe Generale announced in early November that it was buying the 50 per cent stake held by Credit Agricole in leading derivatives broker Newedge and in doing so assume full control. Subject to regulatory approval the deal is expected to be completed before the end of 2013 and will, according to Duncan Crawford (pictured), Global Co-Head of Alternative Investment Solutions, Prime Clearing Services, be highly advantageous as Newedge looks to diversify its offering.
“Newedge is well known for supporting managers in the managed futures space but it’s by no means the only space we cover. Prior to 2008, investors knew very little about CTAs. Post-2008 that changed; for the last five years we’ve been talking to big institutional investors and educating them on what managed futures are and how they can help their portfolios. Now we are focused on diversification and growth, particularly in equities,” explains Crawford.
The Soc Gen deal should help facilitate this. Indeed, as an investment bank it will no doubt want Newedge to ramp up its mandates in equity long/short managers given that it has the CTA, fixed income and global macro markets well covered. According to Eurohedge figures for January 2013, Newedge was the leading broker – by number of mandates – across these three strategies, totaling 81 compared to 46 for Credit Suisse and 39 for JP Morgan.
Over the last couple of years Newedge has embarked on a serious mission to upgrade its service offering, precisely to support growth into other asset classes. In October 2012 it launched an enhanced FX prime brokerage platform to give clients even greater efficiencies in the market.
This has led to an increase in FX prime brokerage mandates, helped in particular by the fact that 50 per cent of Newedge’s business is in managed accounts.
“Managers that are housing their FX prime brokerage with us are saying to their managed account investors that they should move their prime brokerage requirements to us because we are able to tie everything together. Our expertise in managed accounts really sets us apart from the competition,” says Crawford.
As an agency broker, Newedge streams prices for its clients to avail themselves of the best price. “There tends to be a lot of money moving around and if you don’t manage that in an industrial fashion the costs build up very quickly. Our platform makes the most of available efficiencies, which directly benefits our clients,” explains Crawford, adding that cross-margining across asset classes is another core capability.
“If you are holding your FX trades with us in addition to futures, equities, fixed income then everything sits within one risk environment. That makes margining as efficient as possible. Most investment banks can cross-margin within one asset class – FX, for example – but not across asset classes as they tend to be organised in silos, whereas we can.”
That is particularly advantageous to global macro or equity long/short managers who might be employing different FX hedge overlays to their strategies.
As for fixed income, Crawford is excited by the potential growth opportunities of 2014 and beyond. This is because European regulation under EMIR will oblige managers to exchange-clear their derivatives.
“Being the biggest futures clearer in the world we are in a strong position to benefit from OTC clearing. The last couple of months have been encouraging; in November, for example, Aquila Capital appointed us as their OTC clearing firm. So we feel quite bullish about growing the fixed income part of the prime brokerage business too.”