INTL FCStone’s latest announcement that the company is launching a new prime brokerage unit, sparked the curiosity on part of the industry as to what the firm’s reasoning is for entering the market. After reaching out to the firm, Finance Magnates had the opportunity to discuss the matter with two of the main leaders of the effort, Michael DeJarnette who is Co-Head of Prime Services and Benjamin Brown who is leading Business Development of the new PB unit.
Starting from the reasoning for the company’s entry into a space which has been consolidating in recent years, Mr. DeJarnette elaborated that INTL FCStone saw the ongoing reduction in the count of market players as an opportunity.
“Due to the consolidation in the prime brokerage space, we saw a gap in the middle market area. Over the last five or six years, we’ve seen a dramatic change in the business. We saw the opportunity to build a new platform for middle market hedge funds and other asset managers,” DeJearnette explained.
With investment banks pulling back and brisk M&A activity leading to compressing options for the buy side, the company is strongly positioned to enter the business due to some specific advantages it has acquired over the past years.
“INTL FCStone provides us with a combination of infrastructure and autonomy that allows us to create a superior client experience similar to what was available in the early days of the prime brokerage business,” elaborated Benjamin Brown, who is leading the Business Development of the new PB unit.
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The newly crafted team has been able to create a unique platform under the INTL umbrella that provides seamless access across multiple asset classes. This is the main competing points for the company to target the middle market prime brokerage segment.
Bringing Back the Early Days BP Service
While the company has been actively involved in providing FXPB services for some time, the expansion across multiple asset classes came in light of some deterioration in the quality of services as reported by buy-side.
The ongoing consolidation in the industry has impacted the client-centric approach which many of the firms in the PB space started with. With a team of professionals based in Atlanta, INTL FCStone is aiming to change this market place dynamic.
“In the beginning of the prime brokerage and hedge funds boom which wasn’t that long ago, there were more independent providers and higher levels of service. That was due to the higher levels of competition before the recent phase of consolidation in the industry. Driven by the largest and most profitable bulge bracket banks, M&A activity in the market led to a decline in the level of services,” DeJarnette explained.
Asset Class Focus
Aside from its traditionally strong business on the equity and options side, INTL FCStone was able to integrate derivatives and foreign exchange into its offering. The company is marketing itself to hedge funds, mutual funds, pension funds and a large array of professional asset managers.
“We see great growth potential in the emerging and middle market hedge funds space. Our satellite offices across the country are going to provide a network for us to quickly expand,” DeJarnette concluded at the end of our interview.