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S P E C I A L
R E P O R T
PRIME BROKER 2 0 1 6
REGULATION
Adhering to increasingly stricter developments
VULNERABILITY
Self-evaluation proves critical
INNOVATION
Capitalising on an evolving market
FEATURING: ABN AMRO Clearing // Cowen Prime Services // Global Prime Partners // Interactive Brokers // Invast Global
FOR PROFESSIONAL CLIENTS ONLY. NOT FOR USE FOR RETAIL CLIENTS. This is not a solicitation of
any offer of service to US Persons. Any services described are not intended for US persons. Global Prime
Partners Ltd. 4th Floor, 7 Old Park Lane, London W1K 1QR. Company number 06962351. Authorised
and regulated by the Financial Conduct Authority No. 533039 and by the Hong Kong Securities and
Futures Commission.
INTRODUCTION
Tom Simpson
Report editor
REPORT EDITOR Tom Simpson T: +44 (0)207 832 6535 t.simpson@pageantmedia.com HFMWEEK HEAD OF CONTENT
Paul McMillan T: +1 646 891 2118 p.mcmillan@pageantmedia.com HEAD OF PRODUCTION Claudia Honerjager
SUB-EDITORS Luke Tuchscherer, Alice Burton, Charlotte Romeyer ASSOCIATE PUBLISHER Lucy Churchill T: +44
(0)20 7832 6615 l.churchill@hfmweek.com PUBLISHING ACCOUNT MANAGERS Alex Roper T: +44 (0)207 832 6594
a.roper@hfmweek.com; David Butroid +44 (0)207 832 6613 d.butroid@hfmweek.com; Alexandra Bethanis T +44
(0) 20 7832 6618 a.bethanis@hfmweek.com; Andrew Durbidge +44 (0)207 832 6637 a.dubridge@hfmweek.com,
THE MEMBERSHIP TEAM +44 (0)20 7832 6511 membership@hfmweek.com CIRCULATION MANAGER Fay Oborne
T: +44 (0)20 7832 6524 f.oborne@pageantmedia.com CEO Charlie Kerr
HFMWeek is published weekly by Pageant Media Ltd ISSN 1748-5894 Printed by The Manson Group
2016 all rights reserved. No part of this publication may be reproduced or used without the prior
permission from the publisher
H F M W E E K . CO M 3
CONTENTS
06
FUND SERVICES
08
11
14
FUND MANAGEMENT
FUND SERVICES
BREAKING UP IS HARD TO DO
Global Prime Partners investigate the stages of a prime
broker split and how best to deal with the aftermath
FUND SERVICES
16
FUND SERVICES
4 H F M W E E K . CO M
Interactive Brokers
FOR HEDGE FUNDS
Q
Securities Financing
Our real-time depth of availability helps you locate
hard-to-borrow securities and helps protect against
buy-ins and recalls. View the number of shares available
to short, the indicative interest rate charged on
borrowed shares and the current Fed Funds rate.
Q
Q
Trading
Innovative trading technology lets you trade on over
100 market centers in 24 countries, and gives you direct
market access to stocks, options, futures, forex, bonds,
ETFs and CFDs from a single account.
Q
Investors Marketplace
for Access to Capital Introduction
Our groundbreaking online service lets participating
hedge funds market their funds to IB clients who
have been qualied as Accredited Investors or
Qualied Purchasers.
To nd out more, contact an
IB representative by calling toll free
855-861-6414
or by visiting:
ibkr.com/hfm
Interactive Brokers LLC is a member NYSE, FINRA and SIPC. Hedge Funds are highly speculative and investors may lose their entire investment.
Supporting documentation for any claims and statistical information will be provided upon request. [1] According to the Barrons 2016 online broker
review. [2] Based on independent measurements by the Transaction Auditing Group, Inc., (TAG). For additional information see, ibkr.com/info
09-IB16-1004CH992
LEVERAGING EFFICIENCY TO
GIVE NEWER FUNDS A LEG UP
GILDAS LE TREUT OF ABN AMRO CLEARING TALKS ABOUT THE CURRENT MARKET
CHALLENGES FOR MANAGERS AND PRIME BROKERS ALIKE
Gildas Le Treut is
global director of prime
clearing at ABN AMRO
Clearing, a leading provider
of equity and derivatives
clearing services. He is
globally responsible for
the management and
development of prime
services to institutional
investors and alternatives
investment managers, with
a specific focus on arbitrage
strategies, relative value,
equity L/S and CTA.
6 H F M W E E K . CO M
THE FACTS
According to HFMWeek in
April 2016, top custodians and
prime brokers shed 1,000 clients
in 2015. Depending on their
own capital ratio constraints,
individual prime brokers have
reacted to different clients in
different ways. This was largely
dependent on how the funds strategies affect the
banks balance sheet and how these impact the overall
return on equity.
Yet it would seem few of the larger banks have
stopped to look at the longer term implications of cutting off the oxygen supply to smaller, newer managers.
From the point of view of the end investor, this current
situation suggests that they may find themselves only
left with the larger hedge funds to allocate to.
This is fine if performance is strong. Cyclicality in asset management suggests the larger the funds, the more
likely that performance eventually fails (and so fees
will not be justified). If this is correct, then closure or
redemptions are more likely to follow. Could the shutdown of Perry Partners flagship fund after 28 years and
peak assets of $15 billion be a sign of things to come?
FUND SERVICES
Brett Goldstein
has been with Interactive
Brokers for almost five
years, serving as director of
Hedge Fund Sales, US West
Coast. Prior to IB, Goldstein
was a director of Sales for
Citigroups Prime Brokerage
business, primarily working
in San Francisco along with
his tenure in Hong Kong.
8 H F M W E E K . CO M
n an ever-shifting regulatory and competitive landscape how are institutional asset managers supposed
to find a long term partner? Existing managers and
especially new fund managers were once embraced
and coveted by bank-owned prime brokers. All too
frequently, managers find they are being squeezed
out of the industry by primes under pressure to free up
their balance sheets, especially due to Basel III regulations.
How will the current and next generation of highly
skilled asset managers apply their skills and perform their
jobs without the support of an institutional quality custodian and prime broker?
Interactive Brokers LLC (IB) remains committed to
helping institutional clients with transparent prices and
terms for clients. IB provides a unique turnkey solution
where clients, large or small, are all welcome regardless of
AuM, trading style or pedigree.
Three members of Interactive Brokers Institutional
Sales Team present the following five FAQs from clients
and prospects:
HFMWeek (HFM): How can I maintain access to
global markets across various products and potentially improve trading performance, particularly during
periods of heightened volatility?
Interactive Brokers provides direct market access to 100+
markets with the ability for the fund manager to real-time
margin and position monitor on a 24-hour basis. As part
of IBs global offering, the firm offers portfolio margin for
institutional accounts that qualify, and managers can trade
a variety of products, including equities, options, futures,
fixed income distressed and high yield, as well as commodities and currencies through one universal account. In
addition, the firm provides 60+ order types and algorithms
that allow traders to manage their trade workflow under a
variety of market conditions.
The algorithms are designed in-house, and seek price
improvement and to limit market impact under all conditions. The strategies allow for customisation by the fund
manager with the ability to set volume percent settings,
customise time and size increments and in some cases set
a level of urgency.
Some strategies work well for stock trading with wider
spreads while others trade VWAP style and provide a
FUND MANAGEMENT
This point is imperative for an emerging fund: your clearing firm needs to be 100% committed to supporting your
strategy so that you can spend the next year building up
a track record; which was your mission in the first place.
A few key signs of support might be: a) your prime
broker compensates you in a transparent and automated
fashion for lending long positions which are hard-to-borrow; b) your prime broker provides consistent depth and
breadth to meet stock loan needs at a fair price (typically,
Fed Funds Effective overnight rate minus 25 basis points
for easy-to-borrow names); and c) provides access to fairly
priced financing (typically, Fed Funds Effective rate plus
25 basis points).
HFM: In what ways can my prime broker, as a strategic partner, help me raise assets and brand my strategy
to the investment community?
Ask your broker if they have access to capital raising facilities which they broadly provide at similar levels, to all
of their clients. Or if they most likely only market to their
most profitable clients. Interactive Brokers provides an automated platform to fund managers who have the ability
to post their historical performance, as well as information
about their fund to IBs Hedge Fund Capital Introduction
site. The website is made available at no cost by IB to our
high-net-worth and institutional clients, filtered to permit
access by accredited investors, QIBs and other wealth
managers interested in hedge fund investments. More
importantly, ask your clearing firm what percent of their
funds have received some kind of capital investment. The
more automated the process, the more you can focus on
performance and trading.
The Institutional Asset Management world is changing for the largest and most well-respected hedge funds
and advisors, all the way down to the smallest hedge fund
and advisor start-ups. Many global banks and brokers are
reducing staff, support and access to their prime brokerage and custody platforms while increasing corresponding fees. In contrast, IB is in growth mode. Check out our
complete offering at ibkr.com/hedgefunds. Q
H F M W E E K . CO M 9
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portfolio reporting capabilities, and capital introduction.
Jack D. Seibald
Managing Director,
Global Co-Head of
Prime Brokerage Services
516.746.5718
jack.seibald@cowenprime.com
www.cowenprime.com
Michael S. Rosen
Managing Director,
Global Co-Head of
Prime Brokerage Services
516.746.5723
michael.rosen@cowenprime.com
Kevin LoPrimo
Managing Director,
Head of International
Prime Brokerage Sales
44.20.7071.7555
kevin.loprimo@cowenprime.com
Penn Miller-Jones
Managing Director,
Head of
Prime Brokerage Sales
212.419.3949
rpmj@cowenprime.com
FUND SERVICES
TIME TO EMBRACE
CHANGE
NICK BRISCOE OF INVAST GLOBAL SPEAKS ABOUT THE DANGERS OF COMPLACENCY AND
DETAILS HIS BEGINNINGS IN THE INDUSTRY
S
Nick Briscoe is
director of Institutional
Sales at Invast Global,
specialising in global listed
and OTC derivative markets.
He has an engineering
background and specialises
in combining technical skill
and knowledge of global
markets to offer optimised
prime services solutions
tailored to clients.
TO IMPROVE IS TO
CHANGE; TO BE PERFECT
IS TO CHANGE OFTEN
Winston Churchill
FUND SERVICES
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Full Online Access
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Digital Magazine
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Exclusive Event Access
Allocator Database
Compliance Database
Hedge Check
Recruitment Service
Request a Free Trial: hfm.global/register
Contact Us:
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BREAKING UP IS HARD TO DO
GLOBAL PRIME PARTNERS INVESTIGATE THE STAGES OF A PRIME BROKER SPLIT AND HOW
BEST TO DEAL WITH THE AFTERMATH
N
Sean Capstick is
director, head of prime
brokerage at Global Prime
Partners. He joined in 2015
from RWC Partners, Equity
Asset Manager. He previously
worked on the Sell Side for
over twenty years, most
recently as European head
of Prime Brokerage at Bank
of America Merrill Lynch. He
had a series of senior equity
and prime brokerage roles
at Deutsche Bank, Morgan
Stanley and Goldman Sachs.
14 H F M W E E K . CO M
FUND SERVICES
6. Pricing
a) My pricing has stayed stable
b) I have been re-priced
c) A minimum fee been imposed on my account
7. Revenue wallet
a) My PB offers more services because Im a good payer
b) My PB refers to me increasing my holistic revenue payment to the bank across all the different business silos, not
just prime brokerage
If the answer to any of the above was either b or c then
there might be cause for concern. This tells you that your
fund might be ranked low down on the client roster, potentially edging closer to the target-list in the next round
of culling. But dont get caught off-guard the above questionnaire has helped identify the risks and skip past the
various initial Stages of Grief straight to Understanding.
Getting to Acceptance shouldnt be difficult; regulation is
only getting more and more onerous and hence its easy to
see how this trend is only likely to continue and potentially
even accelerate.
So then we need to get on to Moving On choosing a
new prime broker. One that is in it for the long-haul, one
T
Jack Seibald is global
co-head of Cowen Prime
Services, LLC. He was a
co-founder and managing
member of Concept Capital
Markets, LLC until its
acquisition by Cowen Group,
Inc. in September 2015. He
has been affiliated with the
firm and its predecessors
since 1995, and has
extensive experience in
prime brokerage, investment
management and research
dating back to 1983.
16 H F M W E E K . CO M
FUND SERVICES
new norm. Here again, I would suggest that the move into
liquid alternatives has played a key role in dampening fees.
WHERE DO WE GO FROM HERE?
As a former analyst and investment manager, and an investor in hedge funds, I very much believe in the concept
of outperformance, and that ultimately, performance, or
rather outperformance, matters.
In my mind, passive investing is really nothing more
than a race to mediocrity, something completely antithetical to what the capital markets are all about. More importantly, it accomplishes none of the basic objectives of investing. It doesnt provide the mechanism for establishing
the fundamental price of a business and its securities, and
certainly doesnt solve for the capital formation needs of
emerging and growing companies.
Though it has worked in recent years as the markets
have been broadly rewarding, I think its fair to question
whether it can or will survive the next bear market. I doubt
it, and believe that when that next major correction comes,
capital will again look for outlets that can and will provide
positive returns.
Its therefore crucial, in my opinion, that hedge fund
managers remember how to shoot for outperformance.
They need to again get comfortable with the simple notion
that outsized returns generally require the assumption of
increased risk and volatility in returns. Too much emphasis on risk management and not enough on performance is
a key reason, in my opinion, that the hedge fund industry
finds itself at this crucial juncture.
Nothing will make talk of redemptions and the push
back on high fees fade faster than evidence of a return to
outperformance at a time when markets arent delivering positive returns. In my view, the alpha generators will
again gain the attention of investors seeking such returns.
My simple message to those managers who have become
exquisite explainers of everything they do to mitigate
risk, is that they perhaps consider expending more effort
discussing their alpha generating strategies, delivering
on them, and remembering that growing through performance can be financially very rewarding. The goal should
simply be to be better, not bigger.
Fortunately, the industry continues to see a steady
stream of portfolio managers who very much embody the
principal of outperformance and believe that its their responsibility to aim for it, a clear sign of encouragement for
the hedge fund industry. I am also encouraged by the recent announcements of hedge fund divestment by certain
large pensions and endowments, as I see this as a sign of
capitulation by this investor class just at the time when the
downside protections typically provided by hedge funds
will be needed. Q
H F M W E E K . C O M 17
S E R V I C E D I R E C TO R Y
ABN AMRO Clearing, Gildas Le Treut, Global Director Prime // gildas.letreut@fr.abnamroclearing.com // T: +33 1 56 21 9833 // Delphine
Amzallag, Head of Relationship Management Prime Europe // delphine.amzallag@uk.abnamroclearing.com // T: +44 20 3192 9062 // Gary
John-Baptiste, Sales Director Prime Europe // gary.john-baptiste@uk.abnamroclearing.com // T: +44 20 3192 9150 // Brian Duff, Sales Director
Prime US // brian.duff@us.abnamroclearing.com // T: +1 312 604 8208
ABN AMRO Clearing is recognised as a leading provider for integrated solutions in the domain of execution, clearing, custody, nancing and risk management
across asset classes, on a wide range of markets globally. The ABN AMRO Prime Clearing service offering is extremely well t to service hedge funds that apply
strategies in multiple asset classes based on CTA/Managed Futures; Relative Value Arbitrage, volatility and long/short equities. Our innovative services include
synthetic products and Risk Management of the investment portfolio based on correlation between asset classes. Investment rms particularly value our sound
balance sheet, a high level of asset protection and operational excellence.
Cowen Prime Services, Jack Seibald, Managing Director, Global Co-Head of Prime Brokerage Services // Direct: +1 516 746 5718 // Mobile:
+1 516 359 7503 // Jack.Seibald@cowenprime.com // 599 Lexington Avenue, 21st Floor, New York, NY 10022 // Kevin LoPrimo Managing
Director, Head of International Prime Brokerage // kevin.loprimo@cowenprime.com // Tel: +44 20 7071 7555 // 1 Snowden Street, 11th Floor
London EC2A 2DQ
Cowen Prime Services, LCC offers comprehensive brokerage and related services that provide traditional and alternative investment managers with customisable
and scalable solutions. We were built by former investment managers to serve hedge fund managers, managed account platforms, institutional investors, family
ofces, and registered investment advisers with turnkey solutions designed to free clients to focus on their core competencies. Our offering features world-class
custody and clearing options, multi-asset class capabilities, leading execution and order management systems, a seasoned execution desk, a range of nancing
options, a highly professional operations and customer support team, comprehensive portfolio reporting capabilities, and capital introduction.
Global Prime Partners, Sean Capstick, Head of Prime Brokerage // T: +44 (0)207 399 9457 // s.capstick@globalprimepartners.com
Julian Parker, CEO // T: +44 (0)207 399 9450 // julian@globalprimepartners.com
Global Prime Partners is a multi-award winning nancial services rm that provides prime brokerage, execution and clearing services to hedge funds,
broker-dealers, asset managers, family ofces and professional traders. Clients are able to access the global nancial markets via its multi-asset class trading
platform, which provides trade execution, margin nancing, securities lending, clearing and custody services. Global Prime Partners prides itself on providing
state-of-the-art technology and an institutional strength operational infrastructure, with a focus on tailored customer service.
Interactive Brokers, T: +1 855 861 6414 (US toll-free) // 8 Greenwich Ofce Park, Greenwich, CT 06831 // www.interactivebrokers.com
Interactive Brokers LLC is an automated global electronic broker that caters to nancial professionals by offering state-of-the-art trading technology, superior
execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. Interactive Brokers offers complete
prime broker solutions, including custody, execution and clearing, and reporting. Innovative trading technology lets you trade on over 100 market centers in
24 countries, and gives you direct market access to stocks, options, futures, forex, bonds, ETFs and CFDs from a single account.
Invast Global, Nick Briscoe, Institutional Sales // T: +612 9083 1343 // nbriscoe@invast.com.au // Lochlan White, Marketing // T: +612 9083
1336 // lwhite@invast.com.au
GLOBAL
Invast Global is a leading multi-asset brokerage and prime services provider based in Sydney, Australia. We specialise in providing prime services to small/
mid-sized hedge funds, asset managers, proprietary trading forms and other brokerages. Our JASDAQ-listed Japanese parent Invast Securities Co. has a
60-year history as a Forex and Securities brokerage and enjoys stable, long-standing relationships with numerous tier-one Prime Brokers. As part of our
PurePrime facility, we aggregate the best Bank and non-Bank liquidity to give our clients bespoke, optimised liquidity streams for FX, Metals and CFDs. We
have designed a suite of trusted collateral solutions and leverage arrangements that provide clients with unparalleled choice, and the ability to maximise the
efcient use of capital. The spirit of our Japanese heritage translates into industry-leading connectivity solutions, encompassing servers in NY4, LD4 and TY3,
as well as superior DMA connectivity to over 30 global stock and futures exchanges.
+HedgeCheck
+ComplianceCheck
+AllocatorCheck
+VendorCheck
DATA
www.hfm.global/data
18 H F M W E E K . CO M
JOBS BOARD
www.hfm.global/jobs
PurePrime.
GLOBAL
PRIME CLEARING
SERVICES
Making our clients globally competitive.
Gildas Le Treut - Global Director Prime
Sales
Gary John-Baptiste
Europe: +44 203 192 9150
www.abnamroclearing.com
Brian Duff
US: +1 312 604 8208