3/6/10

I realized that there really isn't much information on prime brokerage on this site, even though it has been a significant source of revenue at bulge bracket banks under the S&T umbrella. I currently work in this industry (one of the big players GS/MS/JPM/DB) and am here to answer any question you have about prime brokerage. Silly or not, whatever question you have, shoot them my way.

Comments (119)

3/6/10

In what order do prime brokers typically do their gym, tanning, and laundry?

3/6/10
The Situation:

In what order do prime brokers typically do their gym, tanning, and laundry?
Looks like we got a situation.

haha

3/6/10
The Situation:

In what order do prime brokers typically do their gym, tanning, and laundry?

Gym first. Being fit is important. When a prospective client asks all the major prime brokers to do a beauty contest, the more fit ones get the business. This is why the people (guys and girls) on the prime floor have better physiques than traders/salesppl on other floors (I am very serious).

After gym, laundry follows.

Prime brokers actually don't tan all that much...this is influenced by the vacation schedule. Prime brokers's vacation schedules are dependent on their clients. Most hedge funds rarely make decisions to change prime brokers toward the end of the year (Nov-Dec), so a lot of ppl take time off then, and it's hard to go somewhere with a lot of sun around those months. As a result, most are very pale.

3/6/10

You're right in that Prime Brokerage isn't discussed all that much on this site, thus I don't even really know too much about it. So could you just briefly go over what you actually do in prime brokerage? How is it similar and different from S&T (if they're even related at all)?

Best Response
3/7/10
downtown22:

You're right in that Prime Brokerage isn't discussed all that much on this site, thus I don't even really know too much about it. So could you just briefly go over what you actually do in prime brokerage? How is it similar and different from S&T (if they're even related at all)?

Let me give an overview of prime brokerage. Will be a long post. Prime brokerage is really a huge bundle of services provided to hedge fund clients and these services can be very, very different from each other.

At first all it had was the most basic function, that is custody: asset servicing and clearing. It was very ops-like. You were basically earning a fee to do ops. Nowadays these services are provided free (and done by ops at BBs), as the real money comes from other, more sophisticated services. Even though the work is actually done by ops, you still need front office people (usually in product management) supervising them. for example: there are some countries you can clear securities of and countries you can't. there are some legal entities you can clear certain securities in, and some legal entities you can't. So these ppl try to constantly expand the asset servicing ability/etc. They work a lot with back office teams, technology, and legal, but generatig revenue for the firm meanwhile. (without full asset servicing capability, some HFs wont want to PB with the firm and the big sec lending revenue is gone). You gotta get your basics right before talking about more advanced stuff. Is it really finance work? related to finance yes, but doesn't match the typical "finance job" description WSO-ers aspire to.

Then PB developed a bit more and it had more functions, such as execution (latency sensitive clients such as stat arb funds needs lightening fast execution speed these days), financial reporting (that's like accouting), and capital introduction + consulting (finding institutional clients to complete fund raising efforts, finding new office space for startup funds). Cap intro is pretty self-explanatory. A very salesy role. Financial reporting is all automated these days (ops may have to manually fix it if there's a system error). Creating execution platforms is a real challenge. HFs want their futures, options, stocks and other exchange-traded product executed within a few milliseconds. Product management people work really hard along with IT to develop better and better systems to satisfy clients' needs. PB makes execution revenues from clients (especially stat arb and global macro ones).

After that, PB developed into more sophisticated functions like security financing and security lending services. Financing is basically a lending business, a bank within a bank. They basically lend cash to HFs against a portfolio of assets as collaterals, therefore giving the HFs leverage. HFs have to post a margin and it is up to the PB to determine what the margin is. Margin is usually risk based, therefore a high risk/volatility strategy like activist/concentrated investing would have to post a lot more margin than a low risk/volatility strategy like stat arb. You have margin team that develops margin methodologies that capture the risk of different HF strategies. On equity side, You have collateral traders looking at the rehypothetication market for funding levels (how much does it cost to raise cash from collaterals). On fixed income side, you have traders who participate in the repo market. Sec lending is basically borrowing securities from asset mgrs (think fidelity who HAS to hold everything in an index to replicate index fund like returns) and lend it out at higher rate to HFs, making a cut in the middle. that spread depends on how hard it is to borrow the stock so sec traders spend all day looking at supply and demand of short interests. Synthetics/equity swap trading is also part of the PB business in a way: total return swaps allow a client to go long/short something without committing much cash upfront, it is basically a form of leveraged financing. Financing and sec lending is where the big bucks are and PB actually takes on risk to generate these revenue. You never want some hedge funds to blow up and blow you up in the process, that is why there is a huge emphasis on risk in PB.

Then you have the PB origination/sales people. They own the relationship with the HF clients and wine/dine/golf with them so HFs would use the PB instead of its competitors. Rather than selling financial advices, PB origination people sell the strength of the bank (big balance sheet, good counterparty to have), the range of product and services it offers, its execution ability and operational capabilities, the aggressive margin methodologies it offers, and etc.

Then you have client services reps. Client service reps get a not-so-good reputation in PB, as the work is more mundane. They usually recruit from non target schools for these positios. They are assigned to individual clients and take care of all daily requests of the clients. Clients reach out to them on every question they have (book this trade for me/how to login to some portal/why is my MBS marked so low) and client reps have to coordinate with other functions in PB to answer the requests.

Most BBs have prime brokerage as part of S&T. It is different from S&T as you are not really following a particular asset class (stocks/bonds/fx), but rather trying to offer the best products/services for the buyside. At the same time, there are roles (repo trading, sec lending, etc) that are market related.

3/6/10

What are the good groups within PB and what are the shit ones? How do PB bonuses compare to S, T and IBD?

3/7/10
Brown_Bateman:

What are the good groups within PB and what are the shit ones? How do PB bonuses compare to S, T and IBD?

By "good groups", i am going to assume you mean groups that pay well, have better exit opportunities and more analytical.

Origination sales gets paid really well. I think it's a great job if you have a talent for selling. You just gotta get clients to sign with your PB and you own the relationships. If clients you bring in are big revenue contributers, you are in luck. If you can sell PB, you can sell anything. You are not selling your own expertise/financial advices, you are just selling the products and services the firm offers, and the financial strength of the firm. In addition, you build a great network.

Other good groups are like the trading groups (repo trading, sec lending, etc). It is market related and you get to take some risk. If you have a view that IBM will be shorted heavily by hedge funds starting 3 weeks from now, you can accumulate IBM inventories and hedge your market exposure by selling synthetic forward on IBM (long a put and short a call at same strike). This way, when every HF in the earth wants to borrow IBM in a few weeks, you have all these supplies and can lend it out at high rates and make bank.

the product management groups are good if you are into project management, system design, and IT stuff. I also heard cap intro can be a lot of fun.

In terms of bad groups, i'd say client services is probably the least analytical role...you will just be answering clients' day-to-day request and i don't think that really build the best skillset...some of the product development roles can be mundane too, like less finance related.

Regarding bonuses, it really depends on the group lol. The trading, origination people are going to get paid on par with other areas of S&T, especially if the PB is a big market share taker (like GS/MS back in the day). You'd be surprised how much revenue PB rakes in in a good year... Other groups get a slight discount in pay, as they are not directly contributing to the revenue.

If you are a senior person (SVP/MD) within PB, you get paid pretty damn well no matter what group you are in. PB is a group-work business, and no revenue can happen unless everyone works together. Like, no matter how well a salesperson can pitch, if the execution platform can't deliver/is too slow, or if there is always operational failure, client will not sign with the firm/give a lot of business to the firm. On the junior level, i feel you don't get paid as well as the guys in a trading desk that is doing well.

2/20/16

Deleted

3/7/10
GoldenEagle2009:

I know a lot about coloring. If anybody has any questions, feel free to ask. I own multiple crayola box sets, if that helps my credibility, and I won the coloring contest in third grade, which netted me the first book in The Boxcar Kids series. The key is to outline the image in a marker, then color it in with a crayon, this helps mask mistakes of going outside the lines, and really adds some definition and tone to your colorings. But that's all you get for now. I was going to make up a cool acronym for coloring, but C is takes by Citi, CL by crude, so I'll just stick with coloring, I don't want there to be any confusion.

LOL. but is it necessary?

PB is under the S&T umbrella of a bank, and this is an S&T forum, just trying to be helpful, not ridiculed.

3/30/10

I know a lot about coloring. If anybody has any questions, feel free to ask. I own multiple crayola box sets, if that helps my credibility, and I won the coloring contest in third grade, which netted me the first book in The Boxcar Kids series. The key is to outline the image in a marker, then color it in with a crayon, this helps mask mistakes of going outside the lines, and really adds some definition and tone to your colorings. But that's all you get for now. I was going to make up a cool acronym for coloring, but C is takes by Citi, CL by crude, so I'll just stick with coloring, I don't want there to be any confusion.

omg lol.

3/7/10

Very good, informative post. Ignore the idiots.

2/20/16

Prime Brokerage/HF Consulting is a wierd space. It's part S&T, as you need to know the S&T products and capabilities of your firm, it's part MO/BO and it's all client facing and revenue generating so it's also a bit FO. Prime Brokerage usually, however, falls under it's own group, as they act as a broker/dealer arm for their firm. This role is more about generating new business and catering to client needs than anything else, meaning that you need to have a general knowledge of your firm's S&T platform, what services are offered, risk management, BO clearing functions and the like.

As to exit ops, I have no clue.

2/20/16

This thread should be very helpful....
http://www.wallstreetoasis.com/forums/ask-me-any-q...

2/20/16

Shmoozer, thanks for the link. SB for you... Good stuff... and you reminded me that I need to do my traditional rant...

OP, did you use the search function? I'm betting you didn't... Next time, search before you ask.

3/7/10

thank you very much...

is it fair to say the majortity of the money is money is made lending out (throug SLA agreements, i imagine) the HF securities?
and can you elaborate the SL part...explain it, if you can, as if i was an idiot.

thanks for posting this..very informative...

3/7/10
Batrick Pateman:

thank you very much...

is it fair to say the majortity of the money is money is made lending out (throug SLA agreements, i imagine) the HF securities?
and can you elaborate the SL part...explain it, if you can, as if i was an idiot.

thanks for posting this..very informative...

So PB has two parts: equity and equity linked products (think convertible bonds, warrants, options) and fixed income side (rates, credit and ABS)

In the equity space, the most basic way to make money is financing client's positions (leverage). BBs can take the client's portfolio and raise cash from it (collateralized financing) at attractive rates, let's say some basis points over libor/fed funds/other reference rates and lend this balance out to HFs at a mark up as HFs are less credible counterparties than investment grade rated BBs. This represents part of the revenue. So PBs want large AUM clients that need massive leverage. (fundamental equity l/s funds like Greenlight doesn't really need much leverage and doenst turn over portfolio very often meaning no execution revenue, plus risk is high as they can be wrong in the short run, thus they aren't profitable clients).

Then stock loan plays the next part. When you short a stock, you borrow it from someone and sells it on the open market to raise cash. Then you pledge that cash to the lender as collateral. The lender puts that cash into the repo/fed funds market to earn risk free rate, and "rebate" part of that interest (let's say risk free- 30bps) to you. That 30bps is effectly the cost to borrow. It's pretty easy to borrow stocks with a lot of float out there, but when things become "hard to borrow", it is a "special" stock, like AIG a while ago coz everyone wanted to short it. The rebate rate could become risk free - 1000bps, that means you get negative rebate (you actually have to pay the sec lender almost 10% a year). The stock better go down hard for you to justify this high cost of borrowing. Obviously the PB takes a cut in this: if the sec lender (vanguard) is rebating PB risk free - 30 bps, PB is rebating the client risk free - 50 bps to make 20 bps for themselves. Sec lending guys spend all day analyzing stocks and try to source shorts for their clients (they have databases are are plugged into other banks' inventories), building relationships with the big sec lending firms (asset management companies) so they get good rates. Since you make the most money in "specials" book, traders try to forecast what stocks will be shorted heavily in the future and try to accumulate the supply beforehand. If you wait until a stock goes special, it is not great opportunities anymore as it costs you a lot of money to borrow it from asset mgmt firms. So you want to have the supply before it goes special, the easiest way is to buy it. But then you worry about it falling in value on your book, so you hedge it with the short position in synthetic forward. You can't short stocks in forward market so you use options to construct the same payoff.

Put call parity

Long stock + Long Put = Long call + PV(Strike price)

So rearrage equation

Long Put + Short call = Short stock + PV(strike price) = "synthetic forward"

This way, you own the shares, you can lend it out and you are hedged if the price goes down.

If a client longs a stock that another client wants to short, then it's golden situation. This is because 1) PB can just lend out the long position to the other guy and no need to borrow it from sec lenders (0 cost), but still rebate standard rate to the guy who wants to short. 2) PB doesn't have to raise cash to finance the long position/doesnt have to fund it, because the HF that shorts it already raised cash in the open market and pledge it to PB as collateral (meanwhile the HF still paying standard interest rate on the balance). Basically PBs can make huge spreads when this happens. This is why PBs want a lot of clients/balances/awesome long and short books, so they can monetize from these opportunities. The majority of revenue in the equity business comes from this as well as SL fees.

In the fixed income space, it is basically the same thing. Financing and lending bonds, instead of equities. But the economics is very similar. The FI market is obviously much bigger and much more liquid (like govie stuff).

A significant stream of revenue comes from execution from options/futures, too. Faster systesms are always in demand. You can make great money if you can design good systems.

I currently work in the product management/development team.

3/29/14

Thanks for your excellent breakdown of brokerage service. I have some questions about what mentioned on (securities financing and hope you can give me feedback.
You mentioned that "On equity side, You have collateral traders looking at the rehypothetication market for funding levels (how much does it cost to raise cash from collaterals)." 1.) Does the PB lend the cash that they raised from collateral or the existing cash in their account? 2.) If the PB lend existing cash to HFs, what do they do with the cash they raised from collateral?

2/20/16
2/20/16

Basically a prime broker offers a hedge fund three things:

1) The ability to trade OTC derivatives with counterparties who would otherwise not want to trade with it. Here the bank charges a fee as it novates each trade that the hedge fund does to its own name. In effect changing the trade from:

COUNTERPARTY -> HEDGE FUND to COUNTERPARTY -> PRIME BROKER -> HEDGE FUND

The hedge fund's counterparties are therefore happy as their counterparty credit risk is with the Prime Broker not a hedge fund. The bank acting as prime broker is happy to do this as it has not taken on any market risk just the credit risk of the hedge fund's viability and it has visibility of the hedge fund's positions. This is the fee bit of your quote.

2) Hedge funds want leverage. Prime broker's provide this by letting hedge funds borrow cash against securities they hold (this is the securities lending part of prime brokerage). A second route is by using a delta 1 swap also know as synthetic financing. Whichever route is used, the financing provided allows the hedge fund to put on new trades ie increase its leverage. All financing is basically a game of what interest a bank can change vrs its own funding costs. So this is the "lending spreads" in your quote.

3) Lastly prime brokers provide access to listed markets. This normally includes execution and clearing and could cover cash stock and listed derivatives (one reason why the Listed F&O businesses are usually aligned with Prime Brokerage). Prime brokers charge a commission for each trade so this is the commissions bit of your quote.

Hope that helps

3/7/10

Very informative, Thanks!

2/20/16

You might be able to internally transfer after 2-3 years as an analyst IF you have 1) top marks every year in performance reviews AND 2) higher ups pulling for you in the division you wish to transfer to.

CFA will be a waste of time, looks like all you need to do is crush it at the job and network like a superstar.

3/9/10

Question for you DrNo.

I feel like PB has been getting more attention post-financial crisis. My impression was that this is two-fold.

First, banks like Barcap, DB, CS, and UBS are all trying to build out their presence in these areas (in contrast to, say, MS and GS that have always been big in prime finance), so a hiring spree + laid off people = increased interest.

Second, it seems like PB offers greater work/life balance than many trading desks (I'm coming from the commodities viewpoint where sales, for example, could average 65-75 hrs per week), while still being front-office and still paying quite well.

Do you think these are fair statements, particularly the second point? I'm asking for all the areas you mentioned--sec lending, sales, cap intro, prod dev, synthetics, and risk.

3/9/10
skins1:

Question for you DrNo.

I feel like PB has been getting more attention post-financial crisis. My impression was that this is two-fold.

First, banks like Barcap, DB, CS, and UBS are all trying to build out their presence in these areas (in contrast to, say, MS and GS that have always been big in prime finance), so a hiring spree + laid off people = increased interest.

Second, it seems like PB offers greater work/life balance than many trading desks (I'm coming from the commodities viewpoint where sales, for example, could average 65-75 hrs per week), while still being front-office and still paying quite well.

Do you think these are fair statements, particularly the second point? I'm asking for all the areas you mentioned--sec lending, sales, cap intro, prod dev, synthetics, and risk.

Yes that is right. Post crisis landscape is very interesting, gs/ms clients all started to diversify in their PB selections and it is not uncommon for a big AUM fund to have 3-4 PBs. The european banks trying very hard to expand PB. A lot of people who had groups blow up/restructured moved over to PB, and some of them do so to pay the bill temporarily and move to whatever they were doing earlier (trading/research/sales) eventually. A lot of movement around, people quitting and people interviewing, quite a scene.

PB does offer fantastic work life balances. a lot of the roles are basically 8-6 jobs, the trading guys like 6:30-7 to 5. No weekends, relatively less pressure, easier products to understand (especially to people who never had finance experience before). It still generates a huge chunk of revenue and pays well relative to the hours you work. The downside is that the skillsets aren't as transferrable, cap intro guys can move to HFs as investor relations guy, the traders can go work for HFs as execution traders, or work with CFOs to determine how to finance trades/which PBs to choose. The analytics/risk team can do risk mgmt at HFs, and don't know what the sales can do...i guess they can sell other products? the product mgmt people actually have wide exit opportunities, they can go into product development for anything, finance or not. Overall, it is not too easy to move into other parts of S&T, due to the fact that it is not a very market driven role, and it doesn't involve much risk taking. some of the synthetic traders/salespeople can go into cash equity trading/sales, or become salestraders.

2/20/16

it's not good or bad - it's just putting a fancy label on something that already exists

2/20/16

For clients- yes.
For employment- no.

2/20/16

.

2/20/16

Its one of the more secure areas to work in at the moment. There has been a fair amount of growth recently and as a result there are, at present, not many lay offs.

2/20/16

is it a bad move from ER to PB?

  • BeenPrepping
  •  2/20/16

any idea on total comp after first few years? that thread is sort of vague

2/20/16

It really depends on what bank. I recently met an MD at Goldman who runs their global PB services and he is optimistic since the large hedge funds and megafunds he works with will avoid regulations for the foreseeable future. I also met a former MD at Bear Stearns PB which was one of the best on the street until JP Morgan was able to buy it for pennies on the dollar. He also mentioned that the business is extremely lucrative and helps build relations with the buyside. From what I understand PB requires a lot of manager due diligence and eventually interpersonal skills. In the end you are essentially funding emerging managers and perpetuating the growth of larger funds. I wish I could provide some color on the pay, but I think it is a pretty stable area to go into.

Talent is hitting a target no one can hit.
Genius is hitting a target no one can see.

3/15/10

omg, DrNo you are such a sweetheart. I was impressed.

2/20/16

The term "quanty" is so retarded. If you want a role that doesn't require you to think, join sales or be a client service rep. There's still plenty of areas within PB that require you to know your shit (margining, complex assets and fund structures, pricing, etc.) No idea why you would actually want to be in PB in the first place.

2/20/16

Of course. BB summer internships offer specific opportunities in roles like "Quants/Strats" or "S&T" among others. My latter question asks which roles within in a securities division would deviate from that area. I've never heard anyone associate "non-quanty" (pardon the lack of better term) with "lacking the need to think."

"I get paid to be suspicious when I got nothing to be suspicious about." ~ Bill DeVasher (The Firm)

3/18/10

I must say, DrNo you are the best!!! thanks so much for providing all the insight!

I do have a question for you (sorry in advance if my question is dumb) ... i was wondering how the sec lending rates are determined, say AIG, every one of the prime brokers could potentially have it in their inventory. how do they determine their markup?

sorry for being an idiot lol

3/18/10
mctsun:

I must say, DrNo you are the best!!! thanks so much for providing all the insight!

I do have a question for you (sorry in advance if my question is dumb) ... i was wondering how the sec lending rates are determined, say AIG, every one of the prime brokers could potentially have it in their inventory. how do they determine their markup?

sorry for being an idiot lol

You are welcome.

So when each client signs up to be the client (initial forming of the relationship), PB and client sign a pricing proposal (that can be amended/changed later). This pricing proposal specifies the debit rate and the stock loan rate for non-hard-to-borrow shorts. These rates will be the rates charged to clients. It's up to the collateral traders to raise cash more cheaply than the debit rate charged to the hedge fund (otherwise losing money) and up to the stock lending guy to source supply at a cheaper rate than the stock loan rate quoted to the client. The pricing proposal is obviously determined by the relationship between the HF and PB. HF can get sweet pricing if it is a mega-player and every PB wants to win the business. But if you are a small AUM fund, you are going to have to pay more.

for hard-to-borrow shorts, it depends, each stock being different. The mark up is determined by the cost of getting the supply and how much demand out there is for the limited supply. Supply and demand basically.

2/20/16

no one seem to commented on this, I would like to ask again and see what everyone thinks

3/18/10

Thanks for the overview, sounds like a good gig for people who want something chilled out while staying in the front office.

2/20/16

anyone have any info on this?

2/20/16

Hours are similar to S&T. Since you are working directly with Hedge Funds you won't be working a ton outside of hours when the market is open. Next to no weekends and probably 7-8 am to 6-8 pm most days; analysts supposedly work no more than 65 hours a week. At the big Prime Brokerages like MS, salary is same as I-Banking, $60-$65k base as analyst. Don't know as much about bonus, and I doubt money is as great as you move up. Only positive is that top performers are able to net hedge fund jobs.

3/18/10

I'd also like to add that PB is a valuable business. If you look at an investment bank, you can almost do a sum of all parts valuation. V(bank) = V(M&A division standalone) + V(Capital markets standalone) + V(Equities trading standalone) + V(Fixed income trading standalone) + V(PB standalone) + Synergy Factor + etc.

There are synergies in between. Equity trading relationships lead to PB relationships, etc.

Now, if you use DCF, the value of a business is future cash flows discounted by a discount rate that captures the riskness of the business. PB has nice steady cashflow generation (doesn't lose money usually), and is much less volatile than other businesses. So the WACC/discount factor is smaller, leading to a high valuation.

I think PB is a great business for shareholders, but not so much for some employees (some of the analysts look very bored).

2/20/16
2/20/16

Depends what role in Prime Brokerage.

Obviously the client facing roles such as Business Development & Sales would be considered front office.

The Prime Brokerage Technology roles while not 'FO' by definition, definitely can be well paying and highly prestigious jobs as well.

Feel free to join the Prime Brokerage group also-
http://www.wallstreetoasis.com/group/prime-brokerage

3/30/10

I just got offered a PB client services role in a big bank with a relatively new PB department.

But the not-so-good vibes about clients service reps is scaring me a bit.

Was wondering:
What should i expect?
What are some of the career progressions possible? Can I move to other groups?
Is it really that bad?

4/11/10
jauunny:

I just got offered a PB client services role in a big bank with a relatively new PB department.

But the not-so-good vibes about clients service reps is scaring me a bit.

Was wondering:
What should i expect?
What are some of the career progressions possible? Can I move to other groups?
Is it really that bad?

if you want to move around, you gotta network with other people!

i mean, even though it is not the most analytical job, it can be chill 8-5, talk to clients on the phone, and HF AUM is recovering.

Did you just come out of school? or are you sort of from a middle office/back office background? At my firm it is about half half.

2/20/16

anyone have more info, links to sites or other sources with more input regarding careers in prime brokerage?

2/20/16

Account Inactive

2/20/16

it wil be interesting to see what happens. The brokeages are expected to not grow in the next few years as fast which could result in a large downturn.

2/20/16

as long as HFs continue to grow even though with recent busts, prime brokerage is going to be hot. VPs in some of the BB prime brokerage are pulling in 400 to 600K with a base of not even 150K.

Something to look into instead of blindly following the crowd into becoming an analyst.

2/20/16

any sources for info on this career path?

2/20/16

well all i know for sure is that CS prime brokerage sucks with uncompetitive borrowing and financing rates and are overall subpar with their competitors. We added Citi instead of them to our other 3 prime brokers.

2/20/16

any info on career growth???

2/20/16

umm...what kind of info are you looking for? Care to elaborate?

2/20/16
  • Qualifications to be a HF manager (at Assoc and VP level) at a Prime Brokerage
  • Career path and prospects (pay, roles at Assoc level vs VP)
  • Different services provided by Prime Brokerages to HFs.

Tx!

2/20/16

I thought JPM did not have a prime brokerage...

2/20/16

JPM has a prime brokerage. It focuses on FI, commodities and their derivatives.

Account Inactive

2/20/16

I thought JPM did not have a prime brokerage...

I sure hope you're not working in the industry. JPM as a prime brokerage was in the news for a good two weeks following the Amaranth debacle.

2/20/16

Is there a need to insult? I simply didn't know and buysideanalyst cleared it up.

2/20/16

take some confidence pills marlin. you need'em

2/20/16

Just trying to improve the quality of the board's discussions. Seems like you're the one needing some confidence if you get your jollies from putting others down.

2/20/16

jt - the problem here (and maybe what chinatown is trying to point out) is that this industry can be pretty harsh, any knock/ insult you think you might be getting here is nothing compared to the real world where its face to face, at least here you can log off, lick your wounds and be thankful for the annonymity. If you don't know your stuff it can be a painful place to be. True, idiots seem to abound at all levels (I'm still working on my theory as to HOW?!?) but in all honesty, people won't think twice about pointing out your shortcomings. Now, thankfully I've got in with a good team and its not all about getting off on making people look stupid, but the juniors' market knowledge is dynamite, so maybe it's a function of their smarts....who knows

2/20/16

livingthedream,

I couldn't agree with you more about the industry being a rough place. I've worked in it and have seen what you're talking about.

The difference between what happens at work and what happens here is that the ones acting like shitheads on a messageboard are probably just frustrated junior people who wouldn't have the balls to say that to your face, taking out their frustrations behind some login. Anonymity goes both ways--sure, I could be thankful for the chance to hide my ignorance, but others are equally thankful for the chance to finally be 'top-dog'.

2/20/16

ok - guys back to the topic on hand on behalf of all that are considering various options.

Say you worked for a Prime borkerage and managed a portfolio of hedge funds for 2-3 years...what comes next?

what is the career progression here and prospects ($, quality of life etc) with this line of work?

2/20/16

The way I look at it, and the reason that I answered as I did, is that finding things out in a forum like this can be a lot more fun than digging around the internet. But, it was a stupid question from the point of view that a simple google search would have answered your question for you. But again, I didn't mind answering it.

Account Inactive

4/12/10

Thanks for your reply! I just got out of school that why im kinda nervy about it. I guess the job sounds relatively chill so thats one upside to it i guess.

4/12/10
jauunny:

Thanks for your reply! I just got out of school that why im kinda nervy about it. I guess the job sounds relatively chill so thats one upside to it i guess.

Another upside is you work with a lot of people, from financing desk to margin desk to sales people to operations groups to IT to product development. If you are observant, you can learn the business and move upward and move into a financing desk or sales, where relatively big money can be had.

2/20/16

Yeah, it's hot for the banks, but not for your career development. Basically, prime brokerages exist to serve banks' hedge fund clients. Knowing what they do, I would not advise going into PB. Very similar to operations in fact. You will be working with the operations dep'ts of your counterparties. You will keep track of their fund accounts, balances, wire transfers, rec's.... So nothing fun. In terms of compensation, not too sure, but I don't think it'll be that much higher than operations.

2/20/16

Also expect Prime brokerage to suffer from the cyclical nature of hedge funds, whereas in normal operations you're much safer.

2/20/16

okay thanks guys

2/20/16

Also expect Prime brokerage to suffer from the cyclical nature of hedge funds, whereas in normal operations you're much safer.

Funny to hear this point of view. The whole purpose of a hedge fund is to hold up in down markets; PB should offer some stability in that regard.

2/20/16

Rickets, that is the definition of hedging. But aren't their superior returns based on speculation, the opposite of hedging?

Why cyclical?

  • Because i will become more challenging to make good returns (or not lose money when markets become less predictable). The risks linked to cyclicality are accentuated by the fact that hedge funds are highly geared. You could argue that hedge funds can avoid the negative effects of a cycle by playing with different strategies. Debatable.
  • They will definitely be negatively affected by cyclical cash amounts available. a) in a downturn there is less available all round, b) there are investor cycles (changing allocations from one asset type to another as some assets get more/less popular hence expensive/cheap than others)

Check the press, there is also talk about a "hedge fund bubble". Knock on effect for prime brokerage?

2/20/16

prime brokers are slime

2/20/16
BEAR_eats_BULL:

prime brokers are slime

how come?? Sorry to ask but I don't know anything about them.

2/20/16

Horseshit.

  • justanotherbanker
  •  2/20/16

RE: Are prime brokers ("PB") slime?
In my limited experience (worked for a HF full time for a year), PB aren't slime. We used a BB PB and my observation is that they (for obvious reasons) will sell their services at you pretty hard (which can feel "slimey") but they also add a lot of value by hosting useful events and helping with networking. Our PB introduced us to a number of other HF managers, private investors, and fund-of-funds.

RE: How is the pay?
Not entirely sure. However, my former Oxbridge/Big4 colleague said that prime brokerage guys seemed to be making incredible money, especially considering that the work appears way less grueling than other bank functions (ie IBD).

RE: HF cyclicality and impact on PB
No doubt, PB's lucre hinges on HFs' success and trading volume. PB services hedge funds. In PB, you want to see: more funds + greater avg returns + greater assets under management.

RE: The HF business in general
No expert here, but IMHO check out:
- the Fortress IPO and what that could signal for the future of HFs
- the Yen carry trade " "

RE: Why cyclical?
A couple of points here. Hedge funds, in general, have a broad trading mandate. I don't think it's safe to say (as was said above) that hedge funds are "hedged" and therefore offer above average "stability". Different funds utilize different strategies/leverage/markets and some are could be extremely unstable in certain situations (ie LTCM and the Russian default) whereas others could come out just peachy.

RE: Career development
I agree with slypko that PB will (almost certainly) not be as helpful in developing your career as IBD or cap markets.

Hope all this helps.

2/20/16

thanks a lot justanotherbanker, very informative

2/20/16

Ball boy, your opinion isn't worth shit if you don't explain. Give it a shot if you know how to write.

Might be worth reading up on the HF industry so you know what it is before hand.

For info I'm not in a hedge fund but I'm on the Street.

justanotherbanker: good to see some constructive comments. I also have a mate in PB and they are making huge margins. He did say it would be cyclical though and the high margins should decrease over time as more and more players offer the service.

orbithal: I'd stick to the views above that IBD/markets > PB > ops

2/20/16

good views of topic

2/20/16

Prime brokerage is no money. My good mate from the LSE is getting owned there. Hours are reasonable, but money is spits worth. Don't even think about it. You might as well punch yourself in the face.

2/20/16

work for a company, then go to meetings or conferences, there is always some prime broker wasting your time from eating your bagel trying to tell you to switch to him. They are like used car sales, its so sad to watch

5/12/10

hi, do you know what fees do MORGAN STANLEY AND SMITH BARNEY charge for prime brokerage?
and what is the common proportions between the assets and price of the brokerage service?

5/12/10

Dr No (or anyone else),

I just received an offer from a BB Prime Services division to be an Analyst.... its on the sales/origination side. How do you think this offer compares to a non-BB trading job or a hedge fund trading assistant job? (In terms of job security, compensation, prestige, etc)

Thanks!

-LOR

5/13/10

How long does it take for these Client Service reps to move up the ladder, if at all? Are they the peasants that stay in poverty for 10 years b/f given a chance? Is it a little easier/harder to get into that standard S&T?

5/17/10

I'm looking into IB Prime Brokerage - Business controls at one of the major banks. Any ideas what is the Business control about? (I believe it's a middle office Ops)

How would you rank it?

Future prospects?

Hours/ pay?

Any transferable skills?

Recommended readings that would give me a head start?

Appreciate your help!

5/19/10

"hi, do you know what fees do MORGAN STANLEY AND SMITH BARNEY charge for prime brokerage?
and what is the common proportions between the assets and price of the brokerage service?"

Fees depend on the relationships the hedge fund clients have with PBs, and the size/credit strength of the hedge fund. shady new funds get charged bigger fees. Funds that send tons of trades get a discount.

" just received an offer from a BB Prime Services division to be an Analyst.... its on the sales/origination side. How do you think this offer compares to a non-BB trading job or a hedge fund trading assistant job? (In terms of job security, compensation, prestige, etc)"

Do you want to trade or sell? All depends on you. If you want to trade take the non BB trading job.
Comp wise BB PB sales pays pretty good, in line with other insitutional sales desks.

"How long does it take for these Client Service reps to move up the ladder, if at all? Are they the peasants that stay in poverty for 10 years b/f given a chance? Is it a little easier/harder to get into that standard S&T?"

Depends on your luck, timing and how aggressively you network. I know a guy who transferred into a financing desk very fast. Obvioulsy his timing was good too.

"I'm looking into IB Prime Brokerage - Business controls at one of the major banks. Any ideas what is the Business control about? (I believe it's a middle office Ops)
How would you rank it?
Future prospects?
Hours/ pay?
Any transferable skills?
Recommended readings that would give me a head start?
"

I don't know much about ops. Future prospects = depend on how hard you network. Pay = i would assume bonus would not be too large? Transferrable skill = can do FO prime brokerage with experience. Recommended reading: google to understand various hedge fund strategies.

5/25/10

This is an amazing post, and the original poster seems to be completely on top of his game with the information he is giving out. (All too often people give advice without knowing much of anything).

Thanks DrNo!

7/6/10

Hi DrNo. Thanks for such a great post. I'm currently a equity finance trainee, and i'd like to know if there is any possiblity for graduate recruitment in BBs, especially for securities lending and financing services(or even synthetic prime services if they need rookies?)

Many thanks!

7/10/10

Thank you DrNo. This post is very helpful.

I may join a PB as a developer, but I don't know much about it. Is there much analytic work involved? I want to become a quant developer in the future, is PB the right place to start? If I feel PB is not the right group, how easily I can move to another group?

Many thanks!

7/12/10

Actually I got an offer from a well known financial information provider as a structured product developer, and an offer from a bank as a developer in PB. All my friends recommend me to take the offer from the bank.. I am not sure which one provides better career prospect.

Any suggestion will be very helpful..

7/29/10

Hi there,
Through networking with alumni I obtained an interview with a VP in Prime Brokerage - Equity Finance. How should I prepare for this interview? What are some likely questions to be asked? And how would you answer if they aren't straight-forward 2 + 2=4 questions?
Thank you!

P.S. There is not much info on the website despite being a pretty well known MM IBank

8/2/10

Hi Dr No. I am preparing a project on the Prime Brokerage and how its role fits into an investment bank.

Could you briefly explain how the prime brokerage interacts with the following departments:
Sales/ trading
IBD
Structured products
GCM
Corporate treasury

Any help would be much appreciated!

Thank You

9/30/10

I guess Dr No lost patience. He/she did forget to mention that the landscape for PB's grew massively as Lehmans had been a big PB name and them going down has forced a lot of Hedge funds to now have 2 prime brokers. Since Lehmans was a big name, most HF's opted to try and diversify away from GS/DB/big PB bank's etc who have had a stranglehold on the market. GS even announcing they were going to drop alot of HF's who had less than USD 50 mln capital on the book as it just wasn't cutting the butter anymore. Prime brokerage is usually included under the Equity Finance umbrella and isn't anywhere near as simple as people make out. I find client services can be a misleading title as different banks consider the PB "services" differently. Banks will also offer Cap into and other products to the Hedge funds as a sweetner to get them signed up.

But no disrespect to Dr No, he knows the market inside out. Im guessing s/he works for DB...

2/8/11

.

2/20/11

The financing and risk analysis roles in PB seem similar to a Fund-of-funds group under equity derivatives, are they the same?

I was also under the impression that those in PB or a f-o-f role had similar work to IBD, with long hours and boring modeling, but you stated its a pretty good lifestyle with 8-6 and free weekends, which is surprising. PB and f-o-f work on projects that have no specific completion days, unlike trading 930-4, so it would seem that they can spend countless hours in the office. Why do they not?

1/23/12

What are the benefits of working in prime brokerage?

"I create nothing, I own."

6/21/12
dollarst:

What are the benefits of working in prime brokerage?

It seems DrNo has gone MIA, so I'll do my best to answer this question. A little background on myself.. I have been in the Prime Brokerage/HF Technology space for a little over 6 months now.

I think the advantages to working in Prime Brokerage is that almost all large BBs have a PB department and the learning curve isn't exactly steep.

From the PB Sales prospective, it's all about learning the products you offer your clients inside and out and then networking with others to give & receive leads. Each Prime Broker has their own niche.

Some PBs take on clients that are larger (think 500m+ AUM) and offer all kinds of technology and services for their clients.

Some PBs take on smaller clients who are need of financing and may just offer the basic reporting & some set of technology services.

The great thing about working in Prime Brokerage Sales is that the hours don't necessarily have to be demanding, and typically you're client facing on a daily basis with CFOs/COOs/Hedge Fund Managers. This means you're mostly out during the day lead sourcing and meeting with potential clients. Selling in the Prime Brokerage field is great experience because you learn the ins and outs of relationship building and you also learn how to network & sell 'efforlessly' as opposed to putting in lots of effort.

For example, instead of cold calling hedge funds all day, you'll need to structure your network to where you constantly have lead sources who you can meet with and lead source with. Eventually most of your sales will come from relationships with these lead sources as opposed to cold calling a hedge fund and asking them if they need your services.

While the Prime Brokerage field may not be growing rapidly, I do think it is a great time to be in Prime Brokerage. Post MF Global, any serious hedge fund over $100m should be thinking of having at least 2 Prime Brokers. Also with new regulations and Form PF, many hedge funds are in need of service providers who can help them automate these tasks. On top of that, many smaller hedge funds may need financing from their Prime Broker as well.

All these things combined open up great opportunities to Prime Brokerage Sales individuals if you know how to use your resources.

Hope this answered some of your questions.

Feel free to join the new WSO Prime Brokerage group :
http://www.wallstreetoasis.com/group/prime-brokerage

1/23/12

Also what are the advantage and what is the most and least attractive about this position??

"I create nothing, I own."

6/4/12

Dr. No:

Can you explain the difference between the carrying/financing cost of cash equity portfolios vs swap portfolios through an illustrative example? What are the pros and cons of each approach? Also, if I have excess cash in the portfolio and doesn't require a lot of financing from the PB, what can be done to lower my carrying cost? Any difference above if it's cash or swap??

11/9/12

Hi Senior Monkey, Can you give me some good reasons why would someone like to work in prime brokerage?

1/17/13

Can you explain what the Corporate Actions group does inside a prime brokerage department, and why it would sit there as oppose to being with the Corporate Names traders on a Derivatives desk, or even the Special Situations guys in Equity or Fixed Income?

3/4/13

Basic queries on PrimeBrokerage

Hi,
I am trying to learn about Prime Brokerage, and have have few basic queries listed below. Could someone clarify these basic doubts please?

1. I keep on reading in online documents that after PB Client enters
into trade with counterparty, it informs trade details to PB and counterparty also gives up trade to PB.

a. Does counterparty refer to executing broker or is it different?

b. How does PB Client informs trade details to PB? Is it via email, phone, fax, CSV/XML file upload, FIX
connection or by some other means?

c. What are those trade details that the PB client informs to PB? Economic details plus what else?

d. How does counterparty give up trades to PB? By electronic means or by email etc.?

e. What are those trade details that the counterparty informs to PB? Economic details plus what else?

f. How does PB Client trade with counterparty? Is it via electronic trading?

2/14/15

dumb

2/14/15

What's base pay and % bonus like in the mid-upper levels? I imagine as a first year analyst you get paid something like 70-75k but am more curious as to say what someone makes 5 or 6 years in. 150k? For front office PB sales and cap intro roles

6/9/15

Really useful! Thank you!

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