Global Custodian Fall 2018 | Page 51

[ 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 R E V I E W | C A P I N T R O ] 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 globalcustodian.com 51