Using technology as a differentiator in prime brokerage

Max Hayden, global head of institutional sales, prime brokerage at IG Group, speaks to Global Custodian about how technology should be seen as an important differentiator in both winning business and maintaining client relationships with hedge funds.
By Joe Parsons

Sponsored by IG Prime

GC: Is technology doing all that it can in prime broker-client relationships?

Max Hayden: The cost of entry in the hedge fund space is now very different to what it was after the financial crisis due to regulation that ensued. The prime brokerage community needs to focus on platform access and services which make them cost effective to set up and useful to their client base. For example, many established prime brokers had not linked execution services to financing from a technology and product perspective historically. Because they were separate business lines, interaction with this client base meant the infrastructure was not joined for that purpose and it affected clients.

GC: In your view what is the greatest technology challenge still facing PBs in client interactions?

MH: Large prime brokers tend to have disparate infrastructure spread across many areas of the firm. People who run these primes apply a lot of their efforts on trying to make those different sets of infrastructures as seamless as possible to the end client.

There are points of consolidation which attempt to mask those different platforms. This can make it hard to operate in near real-time risk management, which is a goal for all prime brokers. As business lines have come about from the union of a range of solutions, the cost to open the shop is very high. It means further product development can become second place to cost reduction. With the modern technology systems available to us, I think for the established primes they would look to build their business infrastructure differently now if they were to start again.

GC: Where can technology be an efficient replacement for human engagement in a PB context?

MH: Examples can be found in areas such as onboarding – sophisticated hedge funds usually would want to trade many different things and touch the firm in different places – when setting this up, it can be a challenge internally. Also, the environment to allow firms to have information available to them that supports a high level of automation to onboarding is something that will make it more efficient and would mean less human interaction.

The linkage between prime brokers, fund admins and middle-office providers has improved, but I think there is more to be done. For the COO of a hedge fund, who has responsibility to keep information flowing between their suppliers as efficient as possible, steps to make this better would be a big assistance to them.

Finally, in the development of tech that touches ancillary services like cap intro, we are starting to see more software providers that are assisting in that space.

However, the global sales process will always involve people talking to people, as would consulting to help funds in launching by providing regulatory advice. There has been a push over the years to put client service teams in low-cost centres, but there are always going to be queries for which human interaction would be required.

GC: Where in the PB space would you say services have been commoditised and where can firms differentiate?

MH: Basic expectations of a prime broker include reporting, margining, corporate actions/asset servicing, tech/service reliability etc. On the other side of the coin, value-add services such as analytics on client data, ability to source historical data and to query it, is something that is a differentiator. The ability for primes to scale, to go into new markets quickly and cope with business spikes will also help them differentiate themselves.

GC: What functionality do all PB clients have a right to expect from their provider portal?

MH: The information flow and passage of data between prime brokers and the client is the bulk of their interaction. It is about packages of data moving back and forth, and that needs to be reliable, efficient, and rich in content. A portal is separate to that – it should be available for queries and ad hoc requirements. In this, clients can be more self-driven to go into their accounts and use the facility to interrogate on things that need to be solved from an issues perspective.

Prime broker portals need to embrace the tech of today – they need to offer smart phone access, use apps, they have to be customisable facilities, to have analysis feeds and integrated news etc. It needs to be used to solve issues and queries and be accessed through the modern tech of today.