By Mark Ralph, Prime Brokerage Sales at Marex
Single and multi-family offices have had a long and productive relationship with private banking and wealth management service providers. These partnerships have served family offices well, and many principals of these organisations would justifiably be cautious about making abrupt changes. But in today’s fast-evolving capital markets environment, there are also compelling arguments for considering new ways of thinking.
A growing list of family office principals are starting to embrace the idea of using prime brokers to meet their needs and to open up new strategic options. In this post, Marex Prime Services discusses the factors fuelling this trend and some of the main arguments for why family offices should consider thinking outside of the private banking box.
Financial incentives
Ask a family office official what proportion of capital market fees they pay as a share of assets under management or the family’s net wealth, and the answers are typically many multiples higher than what a comparably sized hedge fund would pay.
Simply put, it is hard to see why family offices should spend so much more in fees. Family offices operate in the same markets as hedge funds and in many cases may exceed them in size and sophistication. So, why shouldn’t they have the same services at the same costs as hedge funds?
One reason is the mindset of family offices. They have been bound by traditional ways of thinking about who they should (and shouldn’t) work with to achieve their goals. Many have long-standing relationships with their service providers and making a big change is not easy for those that have generally been conservative (with a lower-case c) in practice.
In other cases, there may be outsourced CEOs or CFOs. Where the principals are more detached from capital market realities, they don’t see a pressing need to make a change. It could also be because many family offices have only a handful of staff members. This can make it more difficult to devote time to commission reviews.
But something is starting to shift. Think of it as a kind of changing of the guard.
The FOMO factor
Millennials are acquainted with the acronym FOMO – fear of missing out. It aptly describes the feeling that many family offices are starting to experience. And it’s more than just missing out on more attractive financing costs.
As each generation becomes more tech-savvy, many of the principals now steering their family offices are more technologically advanced. Some even qualify as fully fledged digital natives. That means they have new ideas about what’s possible, and they don’t like the idea of missing out on new opportunities.
They understand, for instance, that prime brokerage financing can be more convenient and user-friendly than the more traditional forms of financing on offer. This potentially frees them up to pursue strategic options that had not been entertained before. They also see the appeal of bespoke financing, of asset-backed lending programmes and portfolio lending.
They value the convenience of having a host of different services under one roof and on one platform. Many family offices have an array of different service providers which they need to turn to, with different brokerage accounts or secretarial services. They may work with equity fund brokers on one platform and do fund subscriptions with local custodian banks on another system. Having a prime broker has the potential to streamline their operations and allow them to focus more on maximising returns.
The new generation also wants the institutional-grade level of service that a hedge fund gets. They want the breadth of research, the access to liquidity and the ancillary services that a well-capitalised prime broker offers, and they want to be able to consult and execute 24/7.
And for the multi-family offices in particular, they want to work with partners that are used to providing a holistic service, whether it involves trading and execution, consulting or support. For instance, if there is a liquidity event or a need to onboard a corporate entity, they prefer a prime broker that can handle these different requirements seamlessly. A prime broker can act as a single portal to a financial ecosystem in a way that other specialised service providers may not always achieve.
What to look for
Marex has a long history of working with family offices, so we feel well-placed to talk about some of the things that they should look for when pursuing a cash prime broking relationship.
High on the list should be expertise. Since the goal here is to gain access to institutional-grade prime brokerage services, a family office will want to know that a prime broker candidate has capital markets expertise that exceeds their current levels. They should expect immediate, tangible benefits from this expertise.
A second factor is access. The prime brokerage should be able to give the family office easy access to asset classes and markets around the world. Whether that means investing in funds, global liquid equities, derivatives markets or all manner of instruments. Access in this case means more than just tapping into pools of liquidity, but also tech solutions, execution and clearing.
A third factor should be the service culture. Is the prime brokerage ready, willing and able to provide a bespoke, client-centric service? Not all prime brokers are.
At Marex, we’re happy to say that we can answer in the affirmative to all of those factors and more. Marex Prime Services is a full-service institutional prime broker, which has won awards for its offering and consistently ranked among the world’s best in the Global Custodian Surveys*. We service a wide financial ecosystem, including the private banks and wealth management firms that already cater to family offices. In fact, many of those firms work with Marex in recognition of the value of leveraging all of the benefits outlined above.
Whether we’re talking about family office principals who have been holding the reins for decades or an emerging generation of owners who are keen to explore exciting new opportunities, they all have incentives to take their operations to a higher level. And Marex is eager to talk to them about what we can do to help.
* Global Custodian Prime Brokerage Survey 2023. Cowen (acquired by Marex in December 2023) “has once again outperformed the survey average overall, as well as in 10 service categories.” Ranked in the top ten prime brokers for the sixth consecutive year, one of only six consistently ranked for 12 years and the only non-bulge bracket firm to do so.
