The Manager’s Perspective
By Chris Zellner, Co-Founder, COO and CCO, Asymmetry Capital Management – Asymmetry Capital Management is a diversified equity long/short healthcare fund located in San Francisco. We launched the fund in January 2013. We launched the Fund in an infrastructure partnership with a boutique asset manager, which enabled us to use their trading desk. In September 2015, as they were being sold to another firm, we took the decision to spin out on our own. Doing so meant we needed to replicate the infrastructure partnership we had enjoyed.
At that time, outsourced trading had grown to the point where major institutional allocators were comfortable with it. We knew the Cowen team because when we first launched we had a relationship with Jack Seibald and Mike Rosen at Concept Capital, before they were acquired by Cowen.
Cowen came to us and presented us with a very attractive offer for their outsourced trading solution, which we felt would get us close the previous infrastructure partnership we had been using. We do have some direct relationships on the Street that we use but probably 98 per cent of our trading activities go through Cowen.
The business philosophy at Asymmetry is to keep the team as small as possible, operationally, and outsource as much as possible.
More recently, we’ve increased our trading activity in Japan and it has helped us using Cowen’s trading team in Hong Kong. The bottom line is we don’t want a bunch of different relationships; regardless of whom we had chosen to do outsourced trading with, they needed to have a fully functioning global footprint.
Being a healthcare fund we are research-intensive and we direct Cowen’s outsourced trading team to pay the Street. We use approximately 40 different executing brokers and every quarter we do a commission review. We have a very close relationship with their traders, especially the San Francisco team; we treat them as if they were in-house.
The Cowen team acts as an extension of Asymmetry and saves us from hiring and managing our own trader, in addition to not having to build and maintain the necessary infrastructure. For us, that is a home run.
At present, we aren’t using Cowen’s multi-custodian portal because we use a single prime broker. That said, we still have a fair amount of complexity. We are running a number of separately managed accounts in addition to the flagship fund. Each one of the SMAs has its own PB; we must direct trades on behalf of the client.
Once we go multi-prime for our flagship fund, which we anticipate will happen in 2021, we absolutely will take advantage of the multi-custodian portal. The fact that Cowen does this for its OT clients is very helpful.
My advice to those thinking about choosing an outsourced trading partner is to go into the selection process knowing what you need from the relationship. Your trade flow and commissions are currency. You also must be comfortable that the firm provides you with sufficient documentation to fulfil your best execution obligations (for SEC regulated firms).
You have to do detailed due diligence to pick the firm that is going to fit with you, which isn’t always the easiest thing to tease out.
I would also say that one needs to look at the overall firm relationship holistically. Cowen has a large healthcare research and investment banking footprint, which is one of the things that is helpful to us when we think about our overall Cowen relationship. Our experience is that the smaller institutions tend to do a better job of looking after you on a more holistic basis.
Ultimately, make sure that what you need is aligned with what the OT provider is offering to do for you. That’s the bottom line.