Q&A: FBR’s Murray Sees Big Changes In The Prime Brokerage Landscape

Oct 9 2009 | 9:01am ET

Publically-listed middle market investment bank FBR Capital Markets recently launched a prime brokerage unit. The 20-year-old firm hired a veteran team from Shoreline Trading Group to form the core of the new initiative. The team includes Michael Murray, Matthew Ventura, Paul Havens and Donald Marigliano.

FINalternatives recently sat down with Murray, managing director and head of prime brokerage services at FBR, to discuss the new unit and his views on the changing landscape of the prime brokerage industry.

You and your team recently left Shoreline Trading Group to join FBR Capital Markets. What was the reason behind the move?

Murray: It was a great opportunity for us. When you look at the portfolio of products and services that FBR Capital Markets is able to deliver its clients, it changes the entire introducing prime brokerage space.  We’re defining a whole new segment of the prime brokerage market – one that’s underserved and where we’ll add immediate value for a broad range of clients.

What makes FBR different from other prime brokerages?

Murray: Until FBR launched its platform on September first, you essentially had the bulge prime brokers at one end of the spectrum and the mini-prime brokers at the other – we’re interested in the entire area in between.  The advantages of using a bulge prime are 1) having access to its balance sheet, and 2) gaining access to all of the firm’s services such as research, investment banking, corporate access and institutional brokerage. The advantage of using a mini-prime is its ability to provide high-touch service.  And until now, middle market accounts – which are a large and growing segment of the market – generally fell into one camp or the other, depending on a variety of factors.

FBR offers clients the best of both worlds – the entire suite of institutional products and services that clients need, tier-one customer service, and the peace of mind that comes with having access to a leading clearing agent—we provide clients the custody and clearing services of J.P. Morgan Clearing Corp.  And, there’s added transparency with FBR as a public company; fund managers and investors have complete access to information on its operations and balance sheet.  What FBR Capital Markets brings to the table is absolutely unique in the marketplace.

What specific asset classes do you cover? What other services can you offer your hedge fund clients?

Murray: Our clients have the ability to trade U.S. and international equities, derivatives, and fixed income securities through our institutional brokerage desks and Direct Market Access systems.  And we offer a whole host of products and services – everything from traditional institutional sales and trading and equity capital markets to debt capital markets, credit sales and trading, convertible securities, high yield, listed options, mutual funds, top-ranked equity research coverage of seven industry sectors, along with corporate access to C-level management teams.

Do you have plans to expand the prime brokerage group? Are you going to do any hiring this fall?

Murray: FBR will have a prime brokerage sales and service presence in all seven U.S. offices – New York, Arlington, Boston, Dallas, Houston, Irvine and San Francisco – and we will leverage FBR’s existing operations and infrastructure to help build out the other areas of our platform.  So, yes, we will definitely be hiring.

What is your outlook for the prime brokerage industry as a whole?

Murray: For the industry, as it evolves, we expect to see consolidation among the smaller prime brokers – clients want centralized access to a wide variety of products and services along with top-notch customer service.  Additionally, we continue to see both established and start-up managers focused more than ever on hiring quality, reputable service providers in all areas of the business.  This goes for fund administrators, auditors, law firms, etc.

What about the hedge fund industry? You mentioned that you are seeing an increased demand for separately managed accounts. Are you seeing any other trends or shifts?

Murray: Regulation will change the barrier to entry for many small start-up funds, requiring them to build out infrastructure prior to launch.  Transparency, shorter lock-up periods and lower fees continue to be topics that we are discussing with clients.  These are all part of the reason we continue to see increased demand for managed accounts.

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