The investor’s view of capital introduction

In many, if not most, cases, capital introduction teams at prime brokers have tended to function as ‘quasi marketers’ for their hedge fund clients. The name of the game appears to be getting their clients in front of as many investors as possible, and quite often this means doing so without truly taking the time to understand what investors are looking for.

Cowen Prime Services LLC capital introduction and business consulting team takes a much more measured approach and is taking the opposite side of the trade.

“We’re not acting as distributors of information or products, we are looking to be a source of validation for the allocators,” says Brett Yarkon (pictured), Head of Capital Introduction. “We believe that if we focus on the allocators and take the time to understand their underlying mandates, their risk/return tolerances, and the hedge fund manager profiles they tend to gravitate to, we’re much better positioned to show them ideas that are appropriate for them.” 

With the proliferation of hedge funds in the marketplace, it has become difficult for allocators to source the right managers who are relevant for their mandates. Yarkon and his team believe that engaging in a tailored cap intro solution that focuses on both the fundamental characteristics of the hedge fund clients and the needs of the allocators, has allowed Cowen to build its strong relationship base “and achieve success in getting our clients in front of the potential right money at the right time.” The main goal of the team’s effort is to assist the firm’s clients in maintaining a very targeted outreach to allocators.

The background that Jack Seibald and Mike Rosen, Global Co-Heads of Prime Brokerage and Outsourced Trading, share as former portfolio managers, coupled with Brett Yarkon’s former affiliation with a large institutional investor, and the investment backgrounds of others on the Cowen team, shapes much of the cap intro strategy at the firm. “The investor approach to manager research and selection helps us to differentiate Cowen’s capital introduction process from others in the marketplace,” comments Seibald.

Capital Introduction is anchored on building relationships. “Because we are able to speak the same language as the investors we interface with, we ask the right questions in an effort to understand what drives their investment activity, and therefore are better able to tailor the list of managers we show them. Allocators have come to appreciate us as a valued partner in their manager selection process,” states Yarkon. 

To illustrate the efficacy of Cowen’s tailored capital introduction model, Yarkon refers to one recent event-driven manager who had posted strong returns, boasted a strong manager pedigree, and had decided to start outwardly marketing. 

Coincidently, Yarkon had just had a conversation with a corporate pension fund.

“We followed up, discussed the strategy and our impression based on the research we had done, passed along the relevant information and they agreed that an introduction would make sense. This particular allocator was looking for high alpha generative strategies in areas of the market that require particular expertise, and event-driven was one of those. 

“We made the introduction, gave the manager feedback on what the pension fund thought of the meeting, ensured that all data requested was delivered, and ultimately a sizeable allocation was made. The whole process was completed within six months,” concludes Yarkon.

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