Prime brokerage: Consistency, reputation & service are key

By Jack Seibald, TD Cowen

Published: 20 November 2023

Changes in the prime brokerage sector have resulted in mid-tier providers increasingly attracting funds that were previously associated with large, well-established prime brokers. Many funds have been compelled to seek out new primary or secondary prime brokerage services, affording them the chance to evaluate the market landscape and revisit their criteria and expectations from their prime broker.

Having been in the sector for over 25 years, Jack Seibald, Managing Director and Co-Head of Prime Services and Outsourced Trading at TD Cowen has seen first-hand the positive impact that a strong prime brokerage relationship can have on a fund. Here, he explains why a consistent team with buy-side experience and a strong track record should be a priority for fund managers when selecting a prime broker.

  1. Choose a service provider that thinks and acts like a buy-side organisation
    Having grown up on the investment side of the business, first as an analyst and then as a portfolio manager, I’ve always been mindful of the importance of bringing the buy-side’s perspective to the solutions and services we provide and the manner in which we deliver them. It’s important that your prime broker fully understands the needs of buy-side clients and that your outsourced trading provider looks, feels and functions like a buy-side organisation, from the technology used to the people delivering the service. This approach means they will represent you in the most credible and professional manner - a true extension of your organisation, with a high calibre institutional offering. 
  2. Check out the experience of the team
    The calibre and experience of the team is key to your success. If you are seeking investment, for example, it’s important the team members you will be working with have strong allocator backgrounds and can provide insight and guidance of how best approach and interact with potential investors. Find out about their access to potential investors and the breadth of their network. Ask them about their track record in securing investment.

    Given the current climate, make sure that the team has experience of working through seismic shifts in the global economy and can guide you through turbulent times. The right prime brokerage team, aligned to your values and with an in-depth understanding of your business and aspirations, should provide valuable consultancy and advice ranging from operational efficiencies through to growth strategies.
  3. Consider both the consistency & vision of the prime broker
    The prime brokerage industry has been through a period of turbulence in recent years. Consistency is key. Rankings such as the annual Global Custodian Prime Brokerage Survey provide a good independent benchmark. Look out for firms that have consistently ranked in the top 10 over the last decade as this level of endorsement provides an indicator of strong, stable performance and a robust business model.

    In addition to stability, you should also seek a prime broker that champions innovation and pushes boundaries. Partnering with a provider that focuses on its own evolution, whether through reaching new geographies, adding new asset classes, services or technology, is an indicator of their quest to continually improve their offering for clients.
  4. Ensure your service provider offers a breadth of services
    Whilst all funds need strong operational support, state-of-the-art technology and solid risk management from their prime brokers, additional requirements vary according to the age, stage and in-house capabilities of the fund.

    Prime brokers provide an array of institutional services that can be customised to meet the individual needs of investment managers at any stage of their business. These can include trade execution and custody, middle and back-office support, securities lending and portfolio financing, capital introduction and outsourced trading.

    Outsourced trading is, in fact, increasingly in demand as an efficient route to expertise, scale and reach – improving access to liquidity, asset classes, markets and geographies. This is a trend that looks set to continue throughout 2024 and beyond. It does not necessarily need to be deployed across all areas of trading and can be added as a permanent or temporary solution. It’s a proven and effective way for fund managers to build their businesses.

    Select a prime broker with a breadth of services and capabilities that can support the full lifecycle of your fund. Don’t just think about your current needs as additional services may be required as your business evolves.
  5. Added value and a ‘client first’ approach are key for success
    Having a ‘client first’ philosophy is essential from a prime broker – in terms of having the flexibility to tailor offerings around the client’s needs and being responsive at all times. Proactivity is also important. Strong client service not only means delivering against agreed objectives but also suggesting new ideas or opportunities which could strengthen your offering.

    With the current economic challenges and the focus on cost efficiencies, it’s more important than ever before for prime brokers to be able to deliver value. They should be able to find ways to do more for clients and enhance their businesses without necessarily costing them more.

In my experience, it is the combination of the elements above that make for a strong and successful long-term partnership between the prime broker and fund manager. Only a limited number of prime brokers can offer the full spectrum of services on a global basis and provide the level of high-touch customer service that many funds need. Do your due diligence thoroughly and choose carefully!