The international prime brokerage industry has seen major changes happening in the past decade. HFC’s Stefan Nilsson recently had a chat with Ade Olopade, Regional Head of Prime Services with Maybank Kim Eng Securities in Singapore.
Tell us about Maybank Kim Eng’s prime brokerage services.
Maybank Kim Eng offers a multi-market, multi-asset prime services platform to emerging hedge fund managers, small-medium sized hedge funds, family offices and managed account platforms. As a boutique prime broker, Maybank Kim Eng’s offering provides access to more than 40 executable markets on both cash (nearest market being Singapore and furthest market being Mexico), exchange-traded derivatives as well as synthetic equities and options. Our offering ensures emerging managers have continued access to credit through our credit intermediation strategies. Additionally as probably the only bank-backed prime service platform in South East Asia, we offer cash management solutions to support the banking requirements of our hedge fund clients if so required. From a trading solutions perspective, our trading infrastructure ensures that we are agnostic to trading platforms given the multiple options available to ensure market connectivity (e.g. FIX, API and smart hub connections). From a service support perspective, we run two experienced prime services teams out of our Singapore and London offices.
How do you differ from the bulge-bracket prime brokers?
I guess a key differentiator for us lies in the vision of the House of Maybank which is humanising financial services. This means that we understand the days of little beginnings and putting a human face to how financial services are accessed. And as Basel III takes its toll on the allocation and use of the balance sheet, metrics like risk-weighted assets, leverage ratio denominator, and attributed equity become thematically important buzzwords for off-boarding small and medium-sized managers. Maybank Kim Eng’s boutique prime brokerage solution rests on the concept of aggregation. Aggregation ensures that small- and medium-sized managers benefit from collective bargaining power to overcome the prohibitive minimum revenue hurdles necessary to retain access to “balance sheet” if they had tried to individually on-board directly with a bulge-bracket prime broker.
Is it viable for you to service smaller and newer hedge funds in Asia?
Hedge funds in Asia have historically been smaller in terms of assets under management compared with those in the US or Europe. Comparatively, even the smaller hedge funds are smaller than their US or Europe counterparts. Asia has a large number of boutique funds that need access to prime services but increased capital requirements within the bulge-bracket investment banks have meant that these funds and their managers are being overlooked. Our aggregation model provides economies of scale which allow us to service smaller funds whilst remaining competitive in the market. Although we work with some more established managers, the majority our clients oversee less than $100m in assets. Notwithstanding, we are comfortable working with those managing a modest portfolio of $5m-$10m.
You are a well-established and known broker in South East Asia. What are you doing to target business in other parts of Asia, such as Hong Kong and Tokyo?
Maybank Kim Eng has a strong pedigree as an ASEAN broker-dealer franchise in both institutional and retail equities. This is helpful as it means that we have a brand that potential clients are familiar with and one that we can build on. From a counterparty risk perspective, being a member of the Maybank Group provides assurance to our clients as to the strength of our boutique prime services franchise. With the commencement of our prime services business in late 2014, one would say that we are still relatively new entrants to this space. Regardless, the growth of our prime services franchise in the last three years has shown our ambitions and it is our intention to be very active in expanding our relationships within the hedge fund sector. The hedge fund sector as a whole is very much a relationship-based business where regular communication between funds and their service providers and personal interaction are key to both learning about the needs of clients and informing new prospects of our capabilities. In addition to direct dealings with fund managers, we maintain friendly relationships with other industry participants and this helps to facilitate meaningful introductions. As to how we intend to target business in other parts of Asia, Hong Kong for us is a very important market, home to the largest number of hedge managers in the region. Japan is another market that we have our eye on but given its intricacies and cultural nuances, one that requires a more tailored strategy. To give us a better sensing of Japan as an opportunity, one approach we seek to adopt is to leverage on targeted hedge fund centric events instead of the traditional corporate conferences that are not tailored to the specific requirements that hedge funds. Traditional conferences have this inherent desire to appeal to a wider audience consequently losing the bottom-up perspectives that hedge fund professionals see as more pressing. Events such as the Hedge Funds Club provide a specific forum for hedge fund professionals to meet and share ideas are ideal as they allow for a more direct and efficient approach.
What kind of presence does your PB team have in Asia?
Our PB team is headed out of Singapore and this provides us with a cost-effective platform to reach out to both our core regional markets in ASEAN as well as North Asia. Be that as it may, we also have an office in Hong Kong and this allows us a platform from which to actively engage the local hedge fund community. Having a presence in both countries places us in a strong position as these two markets make up a large share of the hedge funds in Asia.
How do you view the future of the Asian hedge fund industry?
Increased costs and pressure on fees are driving a lot of changes, not just in the hedge fund industry but in active investment management in general. The flow of money into passive strategies with low fee structures has forced active managers to re-think their business models. In the hedge fund space, managers have been looking at new and more flexible cost structures. This is particularly true for smaller managers where attracting capital can be very challenging. The increased cost of doing business, particularly with regard to regulation and compliance, has added further pressure. This is naturally felt more acutely by smaller managers, many of which have responded by pooling resources where possible, e.g. bundling themselves onto fund manager platforms to avail themselves of the shared benefits of reduced compliance cost, operation support etc. Structured solutions such as actively managed certificates offer benefits to managers who want to forego the cost of establishing a fully fledged fund entity. We expect these trends to continue as managers look to lower their fixed costs, particularly in the start-up phase, and to offer more competitive terms to attract new capital. From a markets standpoint, China is an area of particular interest as it offers tremendous potential both in terms of the development of the local investment management industry and as a source of investor capital. The hedge fund industry in China is still in the early stages of development but recent signals from the Chinese authorities indicate that they are interested in fostering its development under a more clearly defined regulatory framework.
You joined Maybank King Eng in 2013. What did you do before that?
Before Maybank Kim Eng, I worked at Cantor Fitzgerald Singapore, MF Global Singapore and Kim Eng Securities Singapore. My time was spent primarily in the Contracts For Differences space for both retail and institutional clients. Prior to the financial markets, I worked with Marubeni in London doing project finance for the renewable energy sector.
If you hadn’t worked in finance, what would you have been doing?
Interestingly, if I were not working in finance, I would be in the budget airline business in Africa – something that I find rather ironic given I am not an avid traveller. From an African perspective, the lack of adequate travel connectivity and the cost of inefficient national carriers has been a major crippling factor in the growth of the tourism sector. I believe the aviation sector in Africa should be privately led. Air Asia as an example is reflective of the power that aviation has in energising tourism markets given how it has opened up ASEAN.