Linear Investments is a Prime broker and executing broker providing services to other brokers, private banks and similar financial institutions and also focusing on services to the Alternative Investment (Hedge fund) sector. These include execution (Desk and DMA), outsourced execution, middle and back office services, and all the normal prime brokerage support including helping to raise capital for associated funds.
Here we hear from the company’s Founder and Chairman Jerry Lees who discusses trends within prime brokerage and his predictions for the sector’s future.
What has been happening with Linear Investments since we last spoke a year ago?
Linear has seen significant growth in custody and discretionary management services from several financial services and private banking clients. Once these clients are on boarded, we expect to see significantly increased deal flow and other clients following the same course with Linear.
What have been the key changes that the prime brokerage landscape has seen recently? How has Linear responded to these changes?
The number of early stage and new start-ups has diminished. At the same time, the larger global prime brokers are starting to concentrate on larger hedge fund clients with high turnover and therefore – higher margins. This has accelerated the number of mid-sized hedge funds looking for services from Linear. In addition, the intense requirements of Mifid II is forcing several funds to look more closely at outsourcing to deal with the reporting and monitoring requirements which Linear has been investing in extensively. We expect to see increasing activity in this area. As we draw closer to Mifid II in 2018, many smaller and even medium-sized firms will not have the resources and technology to meet these demands from the regulator.
Looking into the near future, what do you anticipate for the sector?
There will be a number of smaller and medium-sized funds giving up due to the additional cost burdens of regulation and the fact that it is increasingly difficult for smaller funds to raise capital. Small and medium-sized funds will have to seek new prime broker arrangements with the likes of Linear as the larger Prime Brokers consolidate, even further as Basle III draws close at the beginning of 2019. This trend will accelerate significantly as this deadline approaches.
How would you evaluate your role as Chairman and its impact over the last year or so?
As chairman, I’m tasked with looking at how Linear adapts to the constantly changing market profile to ensure we are making the capital and resource investment we need to cope with the changes. We have invested intensely in technology for MiFID II, Transaction Cost Analysis (real-time), market surveillance, pre and-post-trade risk and continue to invest heavily in these areas. In addition, we have increased our compliance team staff and expertise both in house and through our consultancy partners.
What further goals are you currently working towards with the company?
For the future – we intend to consolidate our position in providing investment management services in the discretionary, advisory and custody areas and build on our capital introduction strengths to help support our hedge fund clients.