Barclays’ Managing Director and Head of Prime Sales, Americas, Betty Gee, argues that, “prime finance has generally not yet undergone the same degree of technological transformation as other markets businesses. As high barriers to entry make it hard to break into the market, and the leading players are by definition content with the status quo, innovation and disruption are most likely to come from mid-tier players. Barclays is big enough to affect outcomes for the industry, but also small enough to want to disrupt the industry”.
According to Preqin’s June 2018 report on hedge fund prime brokers, Barclays was servicing 664 single hedge fund managers and was in the top ten most utilised prime brokers for single hedge funds. (Other surveys based on SEC filings put the number at closer to 400, partly because they overlook funds, including European and Asian ones, which may not be registered with the SEC.)
The composition of Barclays’ client base is also germane to the evolving business model. Clients include systematic and quantitative funds, and leaders in data science and automation, which are increasingly applying their technology, models and algorithms not only to portfolio and investment management – but also to automating and optimising financing decisions.
The leading players are by definition content with the status quo, so innovation and disruption are most likely to come from mid-tier players.
Betty Gee, Managing Director and Head of Prime Sales, Americas, Barclays.
“A combination of unbundling, best execution and technology threatens to challenge relationship-based models of the past. Barclays’ electronic Prime (ePrime) offering sits at the confluence of these trends,” says Gee.
She finds that, “manual, ad hoc processes, can leave hedge funds with limited transparency into the drivers behind the financing rates being offered”. Indeed, Deloitte’s survey entitled “European hedge fund managers’ views on their prime brokerage relationships”, published in its Performance magazine issue 27, identified “transparency and competitiveness of fees” as a key concern in prime broker selection. And a Barclays study found that hedge funds, on average, add 0.30% to 0.80% per year to returns through optimising portfolio financing and cash management.
Internalisation is one way to enhance financing efficiencies. Transparency and technology can expedite the process of facilitating mutually offsetting trades, and offer differentiated pricing to incentivise the client base to supply inventory sought by other clients. For instance, where two clients hold offsetting positions (i.e., internally efficient), some proportion of the saving on funding costs can be shared with the client, thus aligning incentives.
“The end-state of Barclays ePrime is differentiated security-level pricing, with an element of term incorporated,” she explains.
This is a very real ambition, because, “Barclays has invested in human capital, technology and data science for the long term with the objective of scaling Barclays ePrime, premised on providing clients with transparency into Barclays’ returns function for the clients’ piece of the business. We have coordinated the moving parts to change our business model to a more transparent, variable pricing model”.
But Barclays’ investment is only one side of the equation. Hedge fund managers need to be reasonably tech savvy and buy into the concept, and some will need to raise their game so that their own systems for managing data, analytics, messaging protocols and so on can effectively plug into the dynamic, electronic pricing model. Some have chosen to build this capability in-house, while others are increasingly looking to vendors.
0.80%
A Barclays study found that hedge funds, on average, add 0.30% to 0.80% per year to returns through optimising portfolio financing and cash management.
The integrated structure of Barclays’ prime offering enables it to be more nimble. “There is organisational and platform integration across clearing, financing and execution. Global Head of Prime Brokerage, David Lohuis, has overarching oversight across equity financing, fixed income financing and prime derivatives services. This holistic view of all products means he is better placed to offer clients partnership and solutions, and lets him consider factors such as financial resource allocation from a more holistic perspective,” says Gee.
Barclays’ prime finance platform has three main parts: equity financing – including cash and synthetic prime brokerage, and delta one trading; fixed income financing; and PDS (Prime Derivative Services) which encompass clearing and execution of futures, OTC derivatives clearing and FX prime brokerage. Margin offset amongst and within these areas are offered through Barclays’ global netting agreement (GNA) product. Gee argues that, “the effective, integrated and seamless coordination of these moving parts distinguishes the platform from some others”.
“The integrated nature of the offering is a value proposition particularly appreciated by large, complex, multi-strategy funds and quant funds, who are also drawn to the QPS (Quantitative Prime Services), low latency execution, direct market access (DMA) platform,” she concludes. Barclays is particularly renowned in the quant equity space.
Gee has featured in The Hedge Fund Journal’s 50 Leading Women in Hedge Funds report, in association with EY. She is active in women’s groups at Barclays, including being a member of the Women’s Initiative Network’s (Win) Steering Committee. “Win is dedicated to enhancing our work environment with the goal of attracting, retaining and developing women at all levels and career trajectories. Win aims to empower women, with the support of our Male Allies, to develop to their fullest potential by helping them navigate and leverage available resources and networking opportunities,” she explains. Within Win, Gee is a member of the Retention & Development Committee Work Stream, which aims to develop and retain talented women at Barclays by providing opportunities such as Mentoring Programs. Here she acts as a mentor in the LEAD mentoring program at Barclays, which promotes the Learning, Empowerment, Achievement, and Development of junior women across the firm, and fosters a broader community committed to helping women succeed.
This is part of Barclays’ wider organisational commitment to the advancement of women. In 2015, Barclays became a founding member of the United Nations (UN) campaign for women, HeForShe, signing up to three commitments: to increase representation of women in senior leadership; to embed gender equality in culture, processes and policies; and to reach out to 2.5 million women around the world through financial inclusion programmes.
In the UK, the bank is also a signatory to the HM Treasury Women in Finance Charter, which commits financial services firms to linking the remuneration packages of their executive teams to gender diversity targets. Barclays has since 2017 published an annual Gender Pay Gap report. The 2018 report showed that for UK staff, women’s median pay is 42.9% below men’s.