Merrill Lynch has launched Merrill Middle Office Solution, an outsourced, prime broker-neutral platform to provide various middle- and back-office services for the hedge fund industry, in co-operation with independent hedge fund administrator GlobeOp Financial Services.
Merrill Middle Office Solution is available to prime brokerage clients of Merrill Lynch, which says it serves more than one-third of hedge funds with assets over USD1bn, and will initially be offered only in the US market.
The firm says the new product will provide hedge funds and their managers with middle- and back-office services on an independent platform, offering the flexibility to work with multiple prime brokers but also providing access to Merrill Lynch prime brokerage services such as stock lending and financing.
'As hedge funds add prime brokers, the cost and effort to consolidate data across the various systems increases,' says Peter Donovan, head of financing client management at Merrill Lynch.
'We developed the Merrill Middle Office Solution to give hedge funds access to the benefits of a multi-prime broker environment while simplifying the operational requirements. We are confident that multi-prime brokered funds will find it easier to shift balances to Merrill Lynch and to take advantage of our stock loan capability and suite of financing products.'
Jeff Penney, co-head of global markets financing and services at Merrill Lynch, says: 'Both start-up and established hedge funds are increasingly outsourcing their middle- and back-office functions to multiple service providers in order to focus on what matters most to them - performance.
'While other prime brokers may lock in their clients with a front-end system, our strategy is to facilitate the flexible, independent multiple-prime broker environment most hedge funds prefer, giving these funds access to competitive pricing for financing and stock loan. By working together with GlobeOp, we believe that Merrill Lynch is partnering with the pre- eminent provider in this multi-prime broker middle-office services space.'
The core product is a data consolidation engine, with overnight reconciliation of all cash and security positions to multiple prime brokers and fund administrators. A centralised data master generates reports required by the hedge fund manager, including risk management reporting, performance measurement and attribution analytics. Hedge funds trading over the counter derivatives are supported with full trade capture, valuation, collateral management and settlement service.
'We are pleased that GlobeOp has been selected to help facilitate Merrill Lynch's vision of an open platform, middle office architecture for its prime brokerage clients,' says Bill Kelly, head of US sales for GlobeOp. 'This initiative is a result of our continuous drive to respond to demands for increased operational risk mitigation and scalability.
'Our value-add service package offers the strategic benefits of an independent open platform, while accommodating rapid fund growth in high volumes and complex products. GlobeOp's automated, integrated systems and processes reduce fund investments in technology and people.
'Multiple prime brokerage services and providers are available to the fund manager through a single point of web-based access. Funds with complex or high-volume OTC derivatives trades can also access GlobeOp's advanced OTC derivatives processing service, which currently values more than 60 distinct instruments and processes approximately 1,300 trades daily, or 3 per cent of the total daily trade volume.'