3 Key Imperatives for Prime Brokerages
June 1, 2009
As historic flows of hedge fund redemptions draw worldwide attention, prime brokerages face stiff competition for assets under management. Accenture believes that in order to adapt to the current downturn and position for high performance when the market rebounds, prime brokerages face three key imperatives.
1. Strengthen Core Business Capabilities. Prime brokers must anticipate client needs while controlling costs and managing operational and counterparty risk to keep and grow revenues.
First, they must build global reach. Alternative asset managers will continue to do business with prime brokers that offer diverse, global offerings for finance as well as robust trading and custodial services.
Prime brokers must also invest in automation, operations and technical support. For those who have not done so, headcount tends to be high and a lack of modern tools costs them time and money. Risk-weighted exposure to clients should be measured at least daily—-with client positions and portfolios evaluated under a range of simulated economic conditions, including extreme market changes.
2. Build A Client-Centric Organization. High-quality client service is essential to attracting and retaining hedge fund clients, and to attracting an emerging new client base (such as long-only funds). Most firms consider themselves to be customer-service oriented. But how is a "client-centric" focus different?
It means that on an organizational level, a prime brokerage has the capabilities to enhance the client's experience. For example, there can be several hundred steps in onboarding a client, and making this process more efficient for them helps sales and relationship managers.
Clients typically prefer a high degree of self-service, which requires having a secure, robust Web portal. These give clients the ability to access timely reports, stock lending (locates), corporate actions announcements, research, and compliance advisory services. Other services can include automated lending and self-service for corporate actions elections.
Leading prime brokers also have the ability to draw on data sources that include client profiles and activity, contract terms, trading behavior, breadth of business across the bank's products, demands on support and technology resources, and the trending of fees. This helps profile and compare clients and set fees in line with the overall cost of doing business.
3. Focus On Operational Efficiency. In order to build a client-centric organization, prime brokers must make their end-to-end operations more effective by simplifying technology operations and improving:
Reference data management. Prime brokers can use enterprise facilities provided by the parent bank for cost efficiency. But representations of securities and prices must be consistent with the sources the client uses for trading, which may be different from what the bank uses for its own proprietary positions.
Transactional data management. Traditionally, prime brokers' transactional data repositories have been fed through batches from the parent bank's back office systems. Those systems own transactions for confirmation, clearance and settlement facing counterparties, clearinghouses and central depositories.
Trade capture management. Prime brokers can achieve operational efficiency by introducing a consistent service platform for trade capture, confirmations and exceptions management. New technologies support improved services for validation, figuration, allocation, booking, and exceptions handling.
