Redefining the ‘miniprime’ model
For Liquid Holdings Group, a comprehensive technology and services firm that focuses on supporting small- to mid-sized hedge funds, the time has never been better to redefine the ‘mini-prime’ model with a stable environment for managers to generate investor and operational alpha.
Whereas mini-primes focus mainly on execution services, Liquid Holdings leads the discussion with its highly flexible platform, which supports managers beyond mere trade execution. The Liquid platform is cloud-based and combines managed back-office services with mission critical capabilities across order, execution, and risk management as well as portfolio management, compliance, investor reporting, and shadow NAV.
“This is a paradigm shift, as institutional quality capabilities, managed services, and prime solutions have not been available from a single source until now,” explains Robert O’Boyle (pictured), EVP of Sales & Solutions. “Hedge funds require a long operating runway to compete for and win new capital. Aside from showcasing performance, longer operating runways build investor confidence in the team and the processes in place to manage operations.”
Julia Bronson heads up Liquid Prime Services, the execution, clearing, and settlement facility that allows managers to avail themselves not just of first-class brokerage facilities but a complete technology framework.
Bronson explains: “The old prime brokerage model was built to service the largest hedge funds that required customised systems. However, for the new wave of emerging managers entering the market, these same systems were too expensive to maintain and could not evolve fast enough to meet their needs.
“Mini-primes emerged to service this new wave, offering inferior technology in exchange for introductions to bulge bracket brokers. Our approach is different. We have signed an agreement with Goldman Sachs Execution and Clearing, and they will be our clearing partner and custodian. We are also in advanced talks with a second major organisation that will also offer clearing services for us. I’m confident that these two premier providers will adequately meet our needs.”
Liquid Holdings’ objective is to be the top technology and services provider to start-up and emerging managers, using key partnerships to offer custody, margining, and securities lending services. In addition, says Bronson, “we can provide enhanced risk management using our platform’s real-time risk, performance, P&L, and NAV monitoring and reporting capabilities.”
In early October, Liquid Holdings announced a strategic partnership with London-based Global Prime Partners. GPP will use the Liquid platform to provide existing and new managers in Europe with the same additional front- to back-office tools that Liquid Prime Services now offers in the US, allowing Liquid Holdings to provide new managers with clearing and custody in both the US and the UK.
“If our team bumps into a manager six months down the line looking to launch a Europe-focused strategy, we have a natural introduction for them to GPP, and vice-versa,” says Bronson. Having strong execution, clearing, and custodial partnerships in place is essential for any prime broker as counterparty risk is one of the first things investors look at when doing due diligence.
“If a fund is currently using a prime broker at a particular bank, they want their second prime to be with a completely different bank to hedge out counterparty risk. We can provide that,” asserts Bronson. “Our custodians are going to be two different banks with different sorts of balance sheets and a different business mix.”