High Line Advisors LLC

management ideas for banks and broker-dealers

Hedge Fund Coverage

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Our recent post on Team Selling as an alternative to cross-selling prompts a larger series on hedge fund coverage. In future blog posts, we will provide some proven techniques for managing complex institutional investor clients across multiple product areas of a bank or broker-dealer. While these techniques have been applied successfully in a global institutional equity business, they may be extended to fixed income or other multi-product businesses that serve the same client.

UPDATE: High Line Advisors has published an article on this topic. Hedge Fund Coverage: Managing Clients Across Multiple Products is available upon request.

Hedge funds are among the most complex investor clients that banks and broker-dealers serve. Within the equity asset class alone, hedge funds trade globally in cash as well as derivatives, use high-touch and electronic means, and rely on prime brokers to lend cash and securities. This breadth of activity translates into substantial revenue for the firms able to harness it, as hedge funds pay their trading counterparts almost 25 times more per dollar of assets under management than traditional managers. Competitive factors are driving traditional active asset managers to behave as hedge funds do, so institutional sales and trading managers need to develop a coverage strategy to deal with their increasing resource demands and product activity.

While trading in multiple products with broker-dealers, investors also consume their research, capital, and balance sheet, rent their execution infrastructure, and access their corporate relationships. These unique or scarce resources comprise a value proposition for each firm and, even more than the products themselves, are what binds a client to its broker. Clients pay for these resources with their discretionary trading commissions and financing accruals.

Client behavior and payments can be influenced through considered allocation of resources. Managing existing revenues alone is inadequate: finding the opportunities to increase revenues and having the courage to invest in them are critical to growth, even when it means taking resources away from less-productive clients. Segmentation and prioritization of the entire client base allows a firm to define its value proposition and make investments in the most profitable clients as well as in those with the highest probability of increasing their payments to the firm.

Broker-dealers need an efficient organization and scalable methods to coordinate different parts of the firm, and they need to measure the profitability of each client across all products. An effective sales and trading effort coordinates the delivery of resources with a unified goal of maximizing firm-wide rather than individual product revenue.

Because of their comprehensive product and resource utilization, hedge funds are an excellent client model for developing sales strategy. Creating methods to handle such complexity enables banks and broker-dealers to cover any client, from single strategy to multi-strategy, no matter how many products it trades or resources it consumes.

This post represents the outline of practices for sales management. It will also serve as the table of contents for the entire series, so refer back (bookmark) for links to new content as it is added.

  1. Developing a value proposition (understanding what clients want and defining what they will receive in terms of resources)
  2. Protecting current revenues (segmenting clients based on current product revenues)
  3. Finding new revenue opportunities (building client plans; measuring “what you don’t have”; marketing)
  4. Investing for growth (prioritizing clients according to their potential for incremental revenue)
  5. Measuring client profitability (reflecting costs in the segmentation)
  6. Tuning for behaviors (accounting for individual preferences and drivers of satisfaction)
  7. Selling as a team (coordinating sales professionals across products and client buying centers)
  8. Managing the process (reviewing clients, allocating resources, and creating incentives)

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  1. […] Hedge Fund Coverage « High Line Advisors LLC […]

  2. […] strategy, derivatives, equities, hedge funds, marketing, prime brokerage, sales, swaps « Hedge Fund Coverage Finding New Revenue Opportunities » LikeBe the first to like this […]

  3. […] leave a comment » [part of a series on hedge fund sales coverage] […]

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