Wedbush Securities was founded in 1955 and is one of the largest providers of small and midcap equity research in the US. Three years ago, Sean Trager (pictured) set up the prime brokerage division within Wedbush Securities to cater specifically to smaller money managers.
"Rather than focus on multi-billion institutions, we choose to focus on the multi-million institutions. We are building a name for ourselves with the emerging manager community," explains Trager, who continues:
"We provide the infrastructure. If someone were to spin out of a multi-billion dollar hedge fund with friends and family money we give them direct market access. They get access to our trading desks, our research; all the things needed to successfully run a hedge fund."
Wedbush has the largest Equity Research platform on the West Coast comprised of over 20 research analysts covering more than 250 stocks.
"We have a slew of analysts that are covering names that are not typically covered on the Street. These are mainly small-cap and mid-cap names. Our clients are trading off of that information and if there's an opportunity to short a stock they can reach out to our team," says Trager.
Tier one primes might also produce research in less well-known areas of the markets, but the point is they are not giving smaller clients access to it without a significant fee attached. Conversely, Wedbush opts to provide this research to emerging managers, which is just one of many value-adds that it offers.
"One client of ours has set up a new fund with USD100 million and uses a bulge bracket prime broker. His rates are triple anything that he pays here and he doesn't have access to any analysts or research.
"I understand if the manager is raising capital it's advantageous to have a bulge-bracket name on the marketing documents. But equally, it's important to implement a strategy and build a track record. That's where Wedbush is able to lend itself as an infrastructure provider to help institutionalise smaller money managers. We limit their costs and help them grow," suggests Trager.
Wedbush is one of a small handful of self-clearing brokers currently supporting US emerging managers. This brings a lot of efficiencies to managers as Wedbush acts as their custodian, prime broker and research provider. "We are by far the most well established with the longest track record and the largest capital base," remarks Trager.
At a time when emerging managers are politely being shown the door by larger primes for economic reasons, the only other option they have is to use mini primes.
Trager notes, "If somebody wants to short a stock the mini prime goes to the bulge bracket prime and then back to the manager who ends up paying a mark-up for that service. They get stuck in this middle layer between the intermediary and the security lender. By contrast, we allow clients direct access to our securities lending group, removing that extra layer of costs."
Central to the Wedbush prime brokerage solution is the willingness to customise services for the client, acting as an extension of the strategy and trading desk.
"We offer customised algorithms, risk mitigation tools and scenario testing. If a portfolio manager spins out they can become a client of Wedbush and utilise our traders. He doesn't need to negotiate the best borrowing rates as we're already offering them," concludes Trager
