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Instead, a combination of rising interest rates, inflation, soaring energy prices and geopolitical tensions have hit hedge funds, and subsequently the risk management practices of prime brokers. Elsewhere, other local regulatory changes and benchmark replacements continue to impact prime brokers.
Various techniques exist to help combat the issue, including splitting larger parent orders into smaller child orders to disguise the full intent of a trade, to both the market and a single broker. The client’s desired customisation might also achieve different outcomes across brokers.
“We view this as a complement to broker led avenues of liquidity, not as a replacement.” As a result of this, traders are left with increased capacity to focus more on executing larger orders and value-add idea generation for portfoliomanagers. “The But they also promote transparency which is key to trust building.”
That line-up is largely made up of independent firms, prime brokers and custodians, all of whom are enjoying a piece of the growing pie, with their own strengths and weaknesses. Coalition Greenwich points out that from 2018 to 2022 the number of outsourced trading providers grew from fewer than 10 to more than 40.
Speaking to The TRADE, Dean Gray, head of EMEA outsourced trading at Jefferies, explains: “It has been well documented that the past few years have seen a significant shift in the mindset, especially of the larger funds, towards the adoption of outsourced trading.
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