The dramatic changes to the prime brokerage landscape have provided an opportunity for new, modern firms to find their place in the industry. Hedge funds are looking for alternative funding solutions, which is resulting in new market participants and broadening the ecosystem to the benefit of the industry as a whole.
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The dramatic changes to the prime brokerage landscape have provided an opportunity for new, modern firms to find their place in the industry. Hedge funds are looking for alternative funding solutions, which is resulting in new market participants and broadening the ecosystem to the benefit of the industry as a whole.
“In the face of tightening capital, large bank-owned primes have started limiting access for certain funds or shut down operations altogether. With all this change, some clients are concerned with whether banks will support smaller hedge funds, emerging managers and market makers,” says Andy Volz, chief operating officer at Clear Street.
As an independent, non-bank prime, Clear Street supports the prime services and funding needs of an ever-growing roster of hedge fund, family office, and RIA clients with its capital base.
The firm has built a proprietary platform that reimagines the legacy workflows and existing silos that are essential to increasing access in the financial markets, all while transparently decreasing risks and costs. This cloud-native clearing, settlement, and custody stack can work in various settlement regimes, including the move to T+1, which is a priority for the SEC as well as a challenge to legacy tech stacks.
In Volz’s view, hedge funds are facing two key risks in terms of investment strategy performance and regulation.
Recent market conditions have made performance even more important than usual. Volz says: “With the average YTD drawdown at five percent for all hedge funds and 12 percent for equity funds, some funds will not be receiving performance fees for 2022, and potentially for quarters to come. Many managers will only have management fees to finance their operating activities and working capital requirements.
“In this environment it can be harder to maintain the staff and discipline required to properly manage risk both operational and financial.”
Further, hedge fund managers are having to handle a raft of new regulation. In this particularly active year, the SEC proposed 30 new rules in the first 11 months of 2022, the most in over a decade. Though whether and how all of these rules will be implemented has yet to be determined, managers will require support and guidance in order to remain compliant.
From its perspective, Clear Street aims to help managers through these difficult times by providing more real-time access to data and saving costs on third-party systems.
Volz comments: “Without revenue from performance fees, and with institutional investor concerns and increased regulatory scrutiny driving up the costs associated with proper governance, advisors are apt to put a premium on efficiency, service, and reliability. The funds that continue to thrive have invested significantly in their internal systems and processes and have contracted with counterparties and service providers that can provide the real-time, structured data their businesses need to continue to measure risk, capitalize on opportunities, run their businesses efficiently and compliantly, and communicate openly on opportunities and risks with their investors.”
Andy Volz, Chief Operating Officer & Head of Sales, Clear Street – Andy Volz is Chief Operating Officer and Head of Prime Sales and Electronic Execution at Clear Street. He oversees Clear Street’s sales and distribution activities, as well as new business initiatives across the organization. Andy joined the firm in 2021 with almost 15 years of financial services industry experience, and was COO of Jones Trading and Head of Product in Prime Services Sales at Wells Fargo following the company’s acquisition of Merlin Securities
