“I consider my career an unusual combination of odd circumstances,” says Mark Aldoroty, head of prime services at BNY Mellon’s Pershing. Perhaps being modest about his entry into the financial industry, he describes his interview process at Goldman Sachs as relatively pain-free compared to the route most graduates have to take these days.
“I only had one grueling day of interviews, not like today,” he explains. “I was probably one of a more limited pool of candidates who could code at the time.”
Whatever potential was spotted on that single day of interviews at the investment bank renowned for its scrutiny when employing new recruits has been seen again and again in a career spanning over 30-years.
Not only did he accelerate through the ranks at Goldman Sachs, but he then went on to work for two more bulge bracket banks in senior positions, before heading up prime services at Pershing.
“As a programme application developer, I worked in operations and from there I ended up meeting different folks and moved into the controller group,” Aldoroty explains. “I did technology around financing, funding, treasury, etc. before being asked to build technology for the trading desk.
“We developed several different models. I wrote the code and then had the responsibility of working with the desks to explain the funding models. Subsequently, I was asked to do something similar for clients and that’s how I got into prime brokerage.”
Long-term relationships
From then onwards, Aldoroty has become an influential figure in the prime brokerage world, leading a number of different teams across the industry. He joined Pershing in 2014, and it was his work there in particular that earned him the honour of receiving the Industry Legend award at Global Custodian’s New York awards in November 2017.
Pershing has been on the rise since Aldoroty’s appointment, thus winning the Prime Brokerage Operations award at the same event. The service provider has been gradually winning business from some of the bulge bracket firms as clients are increasingly diversifying their prime brokerage providers.
There is perhaps more movement among service providers today than ever before. A survey of hedge funds conducted by Preqin in 2016 found that 39% of those who had switched a provider had changed their prime broker. This was a high percentage compared with custodians, which only 19% had changed.
Aldoroty believes Pershing’s risk profile and stability is helping it win new business in this environment.
“As investors place more pressure on hedge funds and 40 Acts over fees, managers have looked for ways to strengthen their own bottom line,” he explains. “In many cases, that means becoming more efficient with service providers, such as prime brokers or custodians.”
“One of the reasons we’re benefiting is because when you look at the overall risk profile of BNY Mellon, it is a more stable environment. We are not in some of the riskier businesses.
“We are more additive, someone may have other prime brokers but also add Pershing to the mix. They are looking for a partner that’s going to be there and be stable.
“They are making economic decisions for their clients and looking at where we can create operational ease for them. That’s how they make the decisions of where they are going to be. And of course pricing will always come into play.
“Starting up with a new prime broker takes time and energy, so you want to make sure if you are going to do it, it will be a long-term relationship.”
Ups and downs
Recent years have provided many changes to the prime brokerage world. Regulations, balance sheet costs and pressures on hedge funds from their own clients have seen a shift in the landscape.
Despite those pressures, it does seem the tide may be turning for hedge funds, as launches exceeded liquidations on a quarterly basis for the first time in over two years, according to a report from HFR. This was due to improved investor risk tolerance and declining costs drove total hedge funds industry capital to a record $3.16 trillion in 3Q17.
“The hedge fund industry itself has ebbed and flowed in terms of its role in the investing business. They were once the shiny new thing and now they are more common place. In between, there have been some years that have been difficult on returns and others when they’ve been popular investment vehicles,” explains Aldoroty.
While launches, strategies and popularity of hedge funds have varied throughout the years, Aldoroty pinpoints technology as one of the biggest factors in the transformation of the industry during his career.
“If you go back over the timeline of my career, technology has been the biggest change,” he says. “I think of Wall Street as a technology business. While it’s not the only thing to determine success, having the best technology certainly helps.
“The nature of the work has changed over the years as things have become more automated. Hedge funds and mutual fund clients have become automated and we’ve kept up with that.”
One for the future
I ask the new GC Hall of Famer what changes he would like to see in the industry in the coming years and it doesn’t take him long to highlight how hedge funds could reach a broader investor base.
“If you buy a mutual fund or 40 Act fund, the vast majority are long-only vehicles,” Aldoroty highlighted. “Consumers might be more protected if they were both long and short, or trying to generate alpha from the short side. Hedge funds and liquid alt mutual funds can achieve that goal.
“To the retail investors, if they had more liquid alt funds where they can take in smaller amounts of money that would make sense. If hedge funds could get onto 401k platforms of a broader range of companies that would be helpful too.”
The support shown to Aldoroty by his colleagues at the Global Custodian awards this year said a lot about the prime services head. Earning one of the most rapturous set of applause heard all evening, he collected his silverware backed by great enthusiasm from the room.
Evidently a team player, Aldoroty says the people he’s worked with throughout the years have been a big part of his journey, and a major reason he’s still operating in the sector.
“I’ve managed people for the bulk of my career, since I was in my second year at Goldman. I like helping people in their careers and seeing them become the most effective professionals they can be. There are a lot of people who worked for me in the past, who now work at competitors. I’m still in touch with them and it’s been great to see them progress.
“I’ve got a lot of good people around me, I’ve made a lot of good friends and had great fun,” he concludes.