For someone who prides himself on building things, the opportunity for Kevin LoPrimo (pictured) to develop a footprint for Cowen Prime Services in London1 was too good to overlook. Last June, LoPrimo was officially unveiled as Head of International Prime Brokerage and charged with building on the success of Cowen Prime Services in the US, here in Europe.
“We’re trying to create the ‘go-to’ prime broker for small and mid-sized funds, and one that can serve as a second or third prime for larger fund clients,” LoPrimo tells Hedgeweek. “We are equity and fixed income-focused, support listed derivatives, and although we have the capabilities necessary to service FX-focused funds and OTC derivatives, we will continue to shy away from them.”
Back in the 1990s, when the term ‘prime brokerage’ was just being coined, LoPrimo was part of the team that built Goldman Sachs’ US infrastructure, and eventually moved to London to give Goldman the same capability in Europe. In the early noughties, LoPrimo also helped Merrill Lynch and UBS revamp their prime brokerage offerings in Europe. More recently, he spent five years developing the PB business at Global Prime Partners (now referred to as ‘GPP’), a London-based boutique prime broker.
“For the last year I have been working to build Cowen’s Prime Services in Europe, which we have positioned as an upper mid-tier player in the prime brokerage space,” says LoPrimo. “We have been onboarding customers since January and have built a very nice pipeline. We have remained very active over the summer, which is traditionally slow, and as a result, September looks like it is going to be a very good month for us. In my 34 years of experience in prime brokerage, September through November are the busiest months of the year and I don’t think 2017 will be any different.”
During the first few months of 2017, LoPrimo notes that the team was speaking to just a handful of London start-ups a month. Now Cowen is speaking to upwards of 15 a month, while also meeting with a similar number of established managers.
“Some of the start-ups will be launching this year, some will wait until the start of 2018, but either way, the start-up market appears to be heating up nicely in Europe. We are seeing some good business opportunities with established managers as well,” confirms LoPrimo.
Cowen Prime Services was formerly known as Concept Capital Markets LLC before Cowen Inc, a US diversified financial services group, acquired the firm in 2015, along with Conifer Securities, to establish a presence in the prime brokerage arena. Whilst the Cowen name is relatively new to the European Prime Brokerage space, the team headed up by LoPrimo is highly experienced in the market and there is, collectively, a hunger for growth.
In addition to growing its prime brokerage business, Cowen is aggressively expanding in other areas. This is evidenced by Cowen’s acquisition of Credit Research and Trading and the hiring of The Washington Research Group last year, followed by this April’s acquisition of Convergex Group, LLC, all of which extended Cowen’s presence in the market as a leading independent trading platform in equities with high quality research and best-in-class global execution capabilities.
With combined pro forma brokerage execution revenues of over USD400 million in 2016, the latest transaction solidifies Cowen as a clear leader in US trading volume and expands Cowen’s reach to 108 countries around the globe, including China.
“With the Convergex acquisition, Asia-based managers will be able to utilise an overnight trading desk covering Asia, giving them real-time market coverage. At some point we will have people on the ground in Asia,” asserts LoPrimo.
Fact is, small or boutique primes in Europe who would be Cowen’s natural competitors simply do not possess the same financial resources or breadth of products, services and solutions we offer investment managers. Cowen Prime Services in London leverages Cowen’s extensive equity research capabilities, for example. This is a massive advantage, says LoPrimo: “We have a number of clients in Europe using this research, and as we meet with more start-ups, we’re increasingly fielding questions about access to it. Larger funds coming to us from other prime brokers are also keen to use this resource. It’s definitely a value-add in the sales process for us.”
Cowen Prime Services also uses Advent Geneva to deliver portfolio reporting solutions, which most of the tier 1 primes use if they haven’t built their own proprietary systems, like Morgan Stanley has. From a technology perspective alone, the firm strives to be on par with the bulge-bracket primes, not the smaller ones.
As it is a relatively new player to the European market, Cowen is happy to work with managers of all sizes. A tier 1 prime wouldn’t necessarily take on a USD 10 million hedge fund today, but as LoPrimo confirms: “We have just onboarded one such client. He’s going to be actively trading an equity long/short book, use some leverage, but remain diversified to mitigate risk. So from our perspective, there are plenty of exciting business opportunities today.”
He continues: “We look at clients across all revenue streams, whether they be execution, clearing and custody, financing, or stock lending. If we have a long-only fund using limited leverage, that’s fine. We’ll work with them, assuming the size of the portfolio is reasonable and we can generate enough revenue on the clearing and custody side, or perhaps through our fully paid for lending service.”
Whereas the US model employed by Cowen is one of an ‘introducing broker’, where the end client has contracts with both Cowen and the clearing partner, in the UK this is not the case. As LoPrimo explains, the business operates as a classic prime broker, where the client deals with Cowen only, via a single contractual relationship.
“The client faces us and our balance sheet, and we then use the custody and clearing providers to facilitate the services we are providing. The broader the range of capabilities we can provide to our clients, the better. You could say we are a prime of primes.
“As we continue to grow, we will become a more significant partner to each one of our custody and clearing relationships. This is already happening,” confirms LoPrimo.
To date, the UK business has three clearing relationships in place. Whilst there is no obvious overlap with Cowen’s US operations, one of these clearing partners already has a long-standing relationship with the wider Cowen Inc, including prime brokerage.
LoPrimo says that the acquisition of Convergex, will also be helpful for us when it comes to negotiating better services and pricing “which again gives us a leg-up on the competition in the clearing space”.
At the time of this writing, Cowen has approximately 30 clients in Europe. Another 15 to 20 are in the late stages of being on-boarded and are expected to go live in September/October.
Furthermore, LoPrimo confirms that there is a pipeline of another 20 or 30 clients which he expects will be on-boarded towards the end of the year. This would signal an important milestone of 50 clients; not bad for a new PB with less than 18 months’ run time in the European market.
Coming back to LoPrimo’s motivation and mindset, in conclusion he talks earnestly about the excitement of having more tools and products in hand to bring to clients, as Cowen tries to reach out to larger funds as well as the start-up and emerging manager space.
“There’s nothing more satisfying than to work with a start-up manager, help them to grow, watch them flourish, and assisting them with the right tools and solutions. Playing a role in their success is what gets me out of bed every morning.”
1 Cowen’s London prime services business is operating under Cowen International Ltd.
