The alternative funds industry is at a turning point with new regulations focusing on transparency and attracting investors. To this end, Matthew Pinnock, the new head of Prime Brokerage at BNP Paribas, says the industry is changing dynamically, leading to a change in prime brokers business models. When UCITS and dynamic extension strategies began to emerge some people were saying the long only space is getting a lot closer to the alternative space. There is a view we have seen a different dynamic and theres an argument that the alternative space is getting a lot closer to the long only space and youre seeing the emergence of long only strategies within big alternative managers.
Post-Lehman the market is trying to provide more transparency, more security and flexibility around what funds do. We will be in an environment where there are things like margin and collateral that will largely be segregated and held at exchanges or with third parties. Our strategy is to embrace that and continue to run our day-to-day business.
Despite consolidation in the alternative funds space, Pinnock remains pragmatic about the long-term impact. Its no different to many industries or any other financial institution. There has been a huge amount of consolidation in the industry in recent years. One question is will you see the small to medium sized funds consolidate into larger ones before you see the big funds consolidating? I think thats the piece we have been talking about for some time.
In a climate where regulation has dramatically affected the cost of business in recent years, particularly the cost of financing, Pinnock believes businesses in the alternatives space can still remain profitable. A smart firm should be diversified enough and never rely on one aspect of their business changing which, in terms of increased costs could affect their business model. Certain aspects of the business have changed in terms of direct costs but firms can also become more efficient elsewhere. The real cost of the business has changed and some of those costs have been passed onto funds and they have accepted that.
We dont necessarily price services on a transactional basis, but at a relationship level so largely some of those costs have been passed on. Prime services is about having a genuine partner who has a firm wide relationship across multiple different products. We may price that somewhat differently to a purely transactional relationship within one product area. Thats just being prudent and pragmatic.
BNP Paribas prime brokerage division has seen several changes over the last year. In July 2011, the bank unveiled a global prime brokerage platform, enabling the bank to clear and custody assets in nearly every market as well as offer margin financing in 31 markets and in 13 currencies. Further more, the division announced the departure of Samuel Hocking as global head of Prime Brokerage in May. His role was to be filled by Pinnock, who was promoted from head of sales for Prime Brokerage in Europe and Asia.
(JDC)