[ M A R K E T
shifted away from the hedge funds
towards the allocators, the need for the
mid-tier prime brokers has expanded
their capital introduction offering as a
value-added service is in the spotlight
and has become a differentiating factor
to winning business,” says Brett Yarkon,
global head of capital introduction, Cow-
en Group.
“Most mid-tier prime brokers have a
number of clients that are at barely break-
even or in many cases losing money due
to the lack of assets under management
(AuM). Targeted, high quality capital
introduction is often times the reason
why business is won or lost due to the
desperate need for AuM.”
Furthermore, there is a huge oppor-
tunity for mid-tier prime brokers to
capture smaller-sized clients. According
to Deutsche Bank’s annual alternative
investment survey of 436 hedge fund allo-
cators, over half of respondents anticipate
making allocations to funds managing less
than $1 billion in assets in 2018; including
31% who plan to invest in hedge funds
with less than $500 million.
“We work with smaller single strategy
equity and FICC managers through to
the multi-billion dollar shops that are not
getting as much attention, and particu-
larly for fixed income funds to whom we
can allocate balance sheet,” adds Cantor’s
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Sugarman.
“I see it as we have a late mover advantage in building out all
areas of our prime offering; we have been able to hire experi-
enced, senior individuals who bring an enormous amount of
experience across all of our teams.”
With more specialist and niche hedge fund managers being
dropped by the big primes, this has provided an opportunity for
mid-tier prime brokers to enter the scene with a more flexible
offering.
“We believe that ‘a-one-size-fits-all’ approach is not an ap-
propriate approach for a capital introduction group and that
tailored solutions are necessary and becoming the norm,” adds
“Prime brokers have a mix of straight forward client
acquisition and start-ups and smaller funds. With this shift,
the capital introduction and consulting proposition becomes
very important.”
JONATHAN COSSEY, GLOBAL CO-HEAD OF PRIME SERVICES, JP MORGAN
Yarkon. “Our approach focuses on the allocator as much or
more, than the investment manager. With regard to the allocator
we make certain that when we introduce a manager to them it is
because it has been fully diligenced and deemed to be an appro-
priate product for that particular allocator.”
“From the manager perspective, each firm is different and
they all have a strategy that needs to be articulated in a way that
differentiates the manager from others.”
The outsourced option
Another option facing the big prime brokers is potentially
Fall 2018
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