Exclusive Online Only ContentNorthpoint Mini-Prime Services Will Expand With ConvergEx Acquisition
November 23, 2009
ConvergEx Group Tuesday became the latest in a new breed of prime brokers: a miniprime, serving small- and mid-sized hedge funds.
Its acquisition of NorthPoint Trading Partners puts it square in the hedge fund servicing arena, bridging a gap left by large prime brokers who are reluctant to take on smaller accounts.
Mini-primes have emerged to bridge the gap in the hedge fund servicing arena by helping smaller hedge funds hook up with larger prime brokers and technology vendors. Among the players are Cuttone & Co; Merlin Securities; and Terra Nova Financial, which has just been fined $400,000 by the Financial Industry Regulatory Authority for making more than $1 million in improper soft-dollar payments to or on behalf of five hedge fund managers, without following its own policies to ensure the payments were proper. FBR Capital Markets, an Arlington, Va-based investment banking firm, also recently entered the fray.
According to New York based research firm Tabb Group, the number of funds in the small to mid-sized hedge fund segment exceeds those in the larger hedge fund segment by a margin of 25 to 1. Introducing or boutique prime brokerage firms garner approximately 10 percent of new prime brokerage agreements.
The takeover of Atlanta-based Northpoint allows New York-based ConvergEx to offer small and medium sized hedge funds access to introducing prime brokerage services.
“ConvergEx has well-established execution and technology relationships with many of the world’s large hedge funds and we understand the nuances of what hedge fund managers need to succeed,” said Joseph Velli, chief executive officer of ConvergEx. “This is a natural extension to those relationships and enables us to offer smaller hedge funds wide-ranging services and expertise embedded in the high-touch service model that is so important to them.”
ConvergEx can also help expand NorthPoint’s services, Currently, Northpoinit uses Bloomberg, Goldman Sachs’ Rediplus and Derivix as its trade execution systems Now, though, it will also add Eze Castle Software, a subsidiary of ConvergEx, to its list of front-end systems, according to Nelson.
That will allow NorthPoint to add new services such as commission management and the ability to pull in independent research. The Eze Castle platform also offers real-time analytics of market risk.
“Our goal is to add, rather than replace, any of NorthPoint’s existing business relationships while expanding on the range of services we can offer which will differentiate us from competitors,” says Tom Gavin, chief executive of Eze Castle Software.
NorthPoint has historically targeted hedge funds with less than $300 million in assets and will retain Goldman Sachs; Jefferies & Co and JP Morgan Clearing as its clearing agents and custodian banks, says Nelson and will add Pershing to that roster at an undetermined date in the future.
Which is another expansion linked to the acquisition by ConvergEx. Pershing is the clearing arm of Bank of New York Mellon, the one-third owner of ConvergEx.
ConvergEx’s acquisition of NorthPoint capitalizes on a growing cottage industry of so-called mini-primes. Historically small hedge funds could not support multiple prime brokers because they lacked the internal IT staff to deal with the operational complexity. In addition, many large prime brokers have turned away smaller hedge funds that don’t meet the prime’s asset size or product mix requirements.
