Barry Bausano entered Deutsche Bank prime brokerage with a vision of how things could be. Today, several other banks have emulated the prime services offering.
It has been just over eight years since Barry Bausano joined Deutsche Bank’s prime brokerage team. To mark the occasion, Global Custodian inducted the former sell-side trader into its Hall of Fame, recognizing his transformation of the transaction bank’s prime brokerage business into a more integrated prime services offering.
In an interview with the magazine on the eve of the awards presentation, Bausano recalls the one thing that struck him when he was asked by his then bosses to look at prime brokerage, in terms of the overall business of the bank, was that the securities industry seemed similar to Deutsche Bank’s positioning. “There were trends, firstly towards internationalization of the business as global investment managers began to export their methodologies to lots of different jurisdictions.
“There was a major trend towards multi-strategy and multi-product, driven by hedge fund managers trying to move to adjacent strategies to diversify their businesses, he says.”
The third major trend Bausano noticed was toward the concentration of assets under management held by the largest managers. Thus it became clear that being part of an internationally oriented bank with a broad footprint was going to be a huge advantage. And, in terms of people, it was more concentrated in one region or another. “We had the breadth of product suite across the various asset classes, including debt, equity, derivatives and emerging markets, allowing us to offer a broad footprint and product suite to clients. There was also the trend towards oligarchy, driving the biggest and most important clients to face off with institutions that had the capability to be a risk counterpart as well as a financier for them.”
Thus the evolution of a more integrated prime services offering has not surprised Bausano. He explains: “Prime brokerage is one of those businesses that is inherently and inextricably entwined with its parent institution and the businesses that surround it. Prime finance is a business that provides a lot of direct opportunities to finance and service clients, as well as a lot of opportunities in horizontal and vertical integration in some of the other businesses within the bank.
“When the client base is very hedge fund centric, it’s natural to think about the vertical integration into execution services, advisory services and capital markets activities. Clients who have a strategic prime brokerage relationship with their firm tend to be much more active in the suite of products within the capital markets division.
“If you take the vertical integration to the other end of the value chain and think about the administration services and custody services, we find that some clients do like that consolidated offering, but other clients appreciate the separation of church and state. They don’t mind having an extremely strong cash and custody relationship with one broker, and another strong financing relationship with a different firm to diversify their business risks.”
Going forward, Bausano says the challenges facing Deutsche Bank will be reflective of what the industry faces. One of the things that sticks out is the change of collateral liquidity across asset classes. As a consequence of developments in the economy, the liquidity profile is changing, with the decreasing number of counterparts driving down the incremental risk appetite and value at risk (VAR) limits.
–Janet Du Chenne