ConvergEx has bought NorthPoint Trading Partners, a boutique prime broker. The new acquisition aims to target small and medium sized hedge funds. The move comes after seismic change in the hedge fund industry. According to the Global Custodian Prime Brokerage Survey 2009, one hedge fund in three had experienced the termination of a relationship with a prime broker during the year. This rose to more than one in two among the largest hedge funds.
But the most striking finding is the weakening of the stranglehold on the prime brokerage industry of Goldman Sachs and Morgan Stanley. Long dubbed a duopoly, the grip of the two investment banks on the industry had proved immune to repeated attempts by competitors to usurp their leadership position.
As a result, a number of small prime brokers have been vying to gain market share. Jefferies & Company doubled its clientele in the last year, picking up a number of smaller funds from BNP Paribas, which offloaded them after purchasing the Bank of American prime brokerage business.
Merlin Services has tripled its client base over the financial crisis. The multitude of smaller hedge funds within the industry is highlighted at Merlin with nine out of 10 clients running less than $500 million.
A recent TABB Group report also estimated that the number of funds in the small to mid‐sized hedge fund segment exceeds the count in the larger hedge fund segment by 25 to 1 and that introducing or boutique prime brokerage firms garner approximately 10% of all new prime brokerage arrangements.
ConvergEx has well‐established execution and technology relationships with many of the worlds large hedge funds and we understand the nuances of what hedge fund managers need to succeed. This acquisition 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, said Joseph M. Velli, chairman and chief executive officer of ConvergEx Group.
Douglas M. Nelson, chief executive officer of NorthPoint, and Michael L. DeJarnette, NorthPoints president, will continue in their respective roles at ConvergEx. The financial terms have not been disclosed.
NorthPoint offers services that are very much in high demand. In order to be competitive and thrive, start‐up and mid‐sized hedge funds need access to powerful and customized boutique prime brokerage services, and in the past they have had difficulty accessing these services through traditional prime brokerage arrangements, said Nelson.
NorthPoint will continue to be based out of Atlanta, Georgia, and will retain Goldman Sachs; Jefferies & Co and JP Morgan Clearing as its clearing agents and custodian banks. As ConvergEx is third-owned by BNY Mellon, the New York banks Pershing unit may be added to the existing trio.
ConvergEX has also recently acquired NYFIX U.S. Transaction Services business. Under the terms of the deal, ConvergEx will acquire the NYFIX Transaction Services U.S. electronic agency execution business, comprised of the Millennium Alternative Trading System (ATS) and its direct market access (DMA) and algorithmic products. The deal is contingent upon the completion of NYSE Euronexts acquisition of NYFIX Inc. and is subject to customary closing conditions, including regulatory review.
Once the deal is completed, Millennium will be ConvergExs third in‐house ATS and will be independently operated alongside its streaming ATS VortEx, and ConvergExs dark block trading platform, ConvergEx Cross.
Giles TurnerNews Editor