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Prime Broker 2016 HFMWEEK SPECIAL REPORT PRIME BROKER 2016 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 THE ALTERNATIVE PRIME BROKER We are NOT a bank We are a FULL-SERVICE prime broker We value ALL of our clients We give clients a high-touch and fl exible alternative to the traditional, bulge bracket prime brokers. We off er bespoke solutions and quick to market account opening. This is why we’ve won the HFM Week Award for “Best Boutique Prime Broker” for fi ve years in a row. To see how we can add value to your business, visit our website globalprimepartners.com, email [email protected] or call +44 (0) 20 7399 9450 FOR PROFESSIONAL CLIENTS ONLY. NOT FOR USE FOR RETAIL CLIENTS. This is not a solicitation of any off er 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. PRIME BROKER 2016 INTRODUCTION espite regulatory requirements weighing heavy on the prime brokerage sector and talk of larger PBs cutting back on their books, there are still plenty of options D available for astute managers. Global regulations such as Basel III have forced numerous prime brokers to reassess their book of hedge fund clients. But this trend has also provided space for non-bank providers to flourish as innovative managers embrace the shifting environment. While splitting from a prime broker may be inevitable in some scenarios, being caught off guard is not. Evaluating vulnerability can prove to be vital as correctly reading the warning signs may not act as a cure, but could significantly help in moving forward quickly. Through in-depth analysis and expert perspective, this HFMWeek Prime Broker Report 2016 aims to provide a snapshot of current thinking across the sector. Tom Simpson Report editor REPORT EDITOR Tom Simpson T: +44 (0)207 832 6535 [email protected] HFMWEEK HEAD OF CONTENT Paul McMillan T: +1 646 891 2118 [email protected] HEAD OF PRODUCTION Claudia Honerjager SUB-EDITORS Luke Tuchscherer, Alice Burton, Charlotte Romeyer ASSOCIATE PUBLISHER Lucy Churchill T: +44 Published by Pageant Media Ltd (0)20 7832 6615 [email protected] PUBLISHING ACCOUNT MANAGERS Alex Roper T: +44 (0)207 832 6594 LONDON [email protected]; David Butroid +44 (0)207 832 6613 [email protected]; Alexandra Bethanis T +44 Third Floor, Thavies Inn House, (0) 20 7832 6618 [email protected]; Andrew Durbidge +44 (0)207 832 6637 [email protected], 3-4 Holborn Circus, London, EC1N 2HA THE MEMBERSHIP TEAM +44 (0)20 7832 6511 [email protected] CIRCULATION MANAGER Fay Oborne T +44 (0) 20 7832 6500 T: +44 (0)20 7832 6524 [email protected] CEO Charlie Kerr NEW YORK 200 Park Avenue South Suite 1603, NY 10003 HFMWeek is published weekly by Pageant Media Ltd ISSN 1748-5894 Printed by The Manson Group T +1 646 891 2110 © 2016 all rights reserved. No part of this publication may be reproduced or used without the prior permission from the publisher HFMWEEK.COM 3 PRIME BROKER 2016 CONTENTS FUND SERVICES FUND SERVICES 06 LEVERAGING EFFICIENCY TO GIVE NEWER 11 TIME TO EMBRACE CHANGE FUNDS A LEG UP Nick Briscoe of Invast Global speaks about the dangers of Gildas Le Treut of ABN AMRO Clearing talks about the complacency and details his beginnings in the industry current market challenges for managers and prime brokers alike FUND SERVICES 14 BREAKING UP IS HARD TO DO FUND MANAGEMENT Global Prime Partners investigate the stages of a prime 08 WHERE HAVE ALL OF THE PRIME BROKERS broker split and how best to deal with the aftermath GONE? Interactive Brokers investigate where all of the prime FUND SERVICES 16 brokers have gone and why many are charging higher fees HEDGE FUND HEADWINDS: than ever before PERFORMANCE IS THE SOLUTION Jack Seibald of Cowen Prime Services discusses how the industry must move on from the turbulence experienced in recent times 4 HFMWEEK.COM Interactive Brokers FOR HEDGE FUNDS A Prime Broker for Cost-Sensitive Hedge Funds Interactive Brokers offers complete prime broker solutions, including custody, execution and clearing, and reporting Q Lowest Margin Rates and Commissions IB offers the lowest margin interest rates1 of any broker; transparent, low commissions; and best price executions.2 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 Strength and Security IB’s prime brokerage services are backed by a strong balance sheet, large relative equity capital, low-risk business model, client fund protection and consistent performance. 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 qualified as Accredited Investors or Qualified Purchasers. To find 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 Barron’s 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 PRIME BROKER 2016 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 he measure of intelligence is the ability to FIGHTING YOUR CORNER change,” Albert Einstein apparently once Today, investors need returns and so hedge funds have said. And change is what the hedge fund a rare second chance to stage a comeback. Obviously industry and its service providers have not every structure and not every strategy, but any been trying to deal with since the financial area that can achieve the return requirement outcome crisis. investors seek needs to be supported. “TGoing forward it will be interesting to observe The argument that smaller managers can add re- which intelligent solutions prime brokers can come turns still holds, either because they are more nimble up with to help their clients grow and prosper in an or because they can allocate appropriate amounts to environment with increased regulation and continued size sensitive strategies. According to research pub- low interest rates, where cash and other collateral on lished last year by City University London - Sir John deposit tend to cost money. In fact, for a €10 million Cass Business School – a hedge fund with £200m in deposit overnight clients will find themselves paying assets could on average outperform a £5bn hedge fund for the privilege. by 125 basis points a year and a £1bn fund by 61 basis None of this is new, and much has already been points. written about the impact of Basel III’s capital require- The authors also found that other things equal, in- ments, the Central Counterparty Clearing for FX vestors would have been better off with smaller hedge and equity securities financing. funds than with large ones dur- These environmental changes ing the crisis periods. But that is forced some of the larger banks only if these smaller managers to revisit ‘uneconomical’ prime can get financing at a reasonable brokerage and custodial ac- rate, otherwise gains get wiped counts as they look to optimise TODAY, INVESTORS NEED out in costs. So what options to their balance sheets. smaller managers have if the big RETURNS AND SO HEDGE banks are shedding their smaller THE FACTS or less profitable accounts? According to HFMWeek in FUNDS HAVE A RARE The last couple of years have April 2016, top custodians and seen the rise of two alternatives: prime brokers shed 1,000 clients SECOND CHANCE TO STAGE technology driven mini-prime in 2015. Depending on their brokers with limited balance own capital ratio constraints, A COMEBACK sheet, focusing on smaller man- individual prime brokers have agers and expert prime brokers reacted to different clients in servicing specialised strate- different ways. This was largely gies. Due to its tradition in post Gildas Le Treut is dependent on how the funds’ strategies affect the” trading, ABN AMRO Clearing has been able to offer global director of prime bank’s balance sheet and how these impact the overall clients prime brokerage and custody services which clearing at ABN AMRO return on equity. leverages their derivatives clearing expertise and fi- Clearing, a leading provider Yet it would seem few of the larger banks have nancing capacity for quantitative and arbitrage strate- of equity and derivatives stopped to look at the longer term implications of cut- gies. clearing services. He is ting off the oxygen supply to smaller, newer managers. globally responsible for From the point of view of the end investor, this current WE’RE HERE TO HELP the management and situation suggests that they may find themselves only ABN AMRO Clearing has built its prime brokerage development of prime left with the larger hedge funds to allocate to.
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