Solutions
By Jerry Lees (pictured), Linear Investments – A quasi-revolution is happening in prime brokerage. Post-2008, bulge bracket banks were non-discriminatory in the type of hedge fund business they onboarded as managers and their end investors sought to minimise counterparty risks post-Lehman Brothers by opening up accounts with multiple prime brokers. Today, the landscape is vastly different.
Basel III is having a profound impact on bulge bracket banks and their prime brokerage operations. The rules force banks to adhere to Liquidity Coverage Ratios (LCRs) which require them to hold onto sufficient High Quality Liquid Assets (HQLA) to manage down a 30-day market
Pre-2008, Prime Brokerage was a land grabbing exercise. Balance sheet was put to work, free of the shackles of regulation, and hedge funds of all shapes and sizes were welcome. That model has now changed under Basel III. And whilst US banks were quick to recapitalise following the financial crash, European banks have taken longer to assess their balance sheets. Many are now taking steps to restructure as a result.
"In the post-2010 era, it has become a much clearer regulatory environment and a much tougher capital situation, particularly for European banks. I think US banks, with liquidity stress testing
Earlier this year, Concept Capital Markets LLC was acquired by Cowen Group, Inc. ("Cowen"), a US investment bank and alternative investment manager with a heritage dating back to 1918. The transaction was completed 1st September and thanks to the significant financial resources that Cowen has at its disposal, the newly named 'Cowen Prime Services' division is now in a strong position to move quickly and build out its market share; with Europe a key focus of attention.
"We believe that there is a real opportunity for Cowen Prime Services to enter the European market and be successful," comments Mike Rosen
US prime brokers are stealing a march on their European peers as European banks grapple with the demands of shoring up their balance sheets to comply with Basel III rules. As Reuters reported 7th October 2015, Goldman Sachs and Morgan Stanley have a 37 per cent market share, up 6 per cent from the end of 2014 (according to data from Preqin). Goldman was servicing 2,240 hedge funds through May 2015, followed by Morgan Stanley with 1,693. JP Morgan rounds out the top three with 1,462 hedge funds.
Credit Suisse Prime Fund Services is the highest ranked European PB, with
MarketAxess Holdings has added the ability to trade local currency Asian bonds to its electronic trading platform.
The initiative is part of a commitment to expanding in the Asia Pacific region which includes opening an office in Hong Kong, the second in the region, alongside the existing office in Singapore.
Asia-based platform participants benefit from access to an expanding global credit trading community that includes over 1,000 institutional investor and broker-dealer firms, through MarketAxess’ award-winning electronic platform.
MarketAxess has added the ability for platform participants to trade local currency bonds denominated in Indonesian Rupiah (IDR), Thai Baht (THB) and Singapore
The current bull market started in March 2009 and is now in its 80th month. Like the bulls of the past, this current one will end, maybe not just now, but eventually. Our models don’t detect a bear market yet, but this is a "seasoned" bull – there were only two other bull periods since the 1930s which lasted longer than the current one. The graph below compares the duration of the current bull market with previous ones for the S&P 500.
By historic comparison this bull is long in the tooth; it might continue for a while and set
The threat of cyberattacks is growing within the hedge fund community, requiring managers to put in place policies and procedures that address the cybersecurity risks unique to their firm. This goes beyond merely acquiring technology and hoping for the best.
"This year we see the emergence of Chief Information Security Officer (CISO) roles that will help hedge fund managers understand their risks and how the technology is aligned to mitigate those risks. It's about making sure that network professionals are using the right tools applicable to the firm's investment strategy," explains Mike Asher (pictured), CIO at Richard Fleischman & Associates
These are exciting times for the financial technology sector. In the last few years, market complexity has grown in response to increased regulatory demands, increased investor due diligence requirements, more complex fund strategies and even how hedge funds manage their balance sheets with their prime brokers.
These demands are in turn putting pressure on technology specialists to innovate. One firm that is helping pioneer the way that hedge funds streamline their operations is Eze Software Group. According to President Jeffrey Shoreman (Pictured), "we feel we are driving innovation in this space by bringing together front, middle and back office functionality
Alternative asset manager Aquila Capital has further refined its Risk Parity strategy with the aim of increasing the expected returns from already highly valued asset classes and to provide better protection from market corrections.
First, Aquila Capital has improved the resilience of its AC Risk Parity Funds to simultaneous losses incurred across asset classes through the implementation of an enhanced risk management system that went live in December 2014. Second, potential returns of the Funds will be improved through broadening the diversification within the existing asset classes.
In addition, Aquila Capital has lowered the fees of the AC Risk
Macro Risk Advisors (MRA), a provider of global equity derivatives strategy and trade execution for institutional investors, has expanded its sales and trading team with the addition of Jerry Hammerschmidt as an Institutional salesperson.
The addition of Hammerschmidt demonstrates MRA’s continued effort to offer exceptional and timely analysis around risk and the macro environment to institutional investors.
“We are very excited to have Jerry join the salestrading team here at MRA,” says Brian Bier, Co-Head of MRA’s trading desk. “Jerry has many years of experience trading cash equities and derivatives, and we know he will be a great addition
