There’s More To Outsourced Trading Than Cost Savings

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Meraki was featured in AlphaWeek’s newsletter this week. Thank you Greg Winterton for the insightful discussion, it was a true pleasure to collaborate.

Read More Here

Website Link to AlphaWeek

In this interview, Benjamin Arnold, Founder & CEO of Meraki Global Advisors, discusses the considerations for hedge fund managers when selecting an outsourced trading provider.

Alpha Trading vs. Execution Trading:

Ben Arnold explains the difference between these two models. Execution trading is like being covered by a sell-side sales-trader, often leading to information leakage and single asset class execution. On the other hand, alpha trading involves a dedicated trader who integrates into the fund’s investment process, allowing for trading across asset classes and personalized services. Alpha traders have experience on both the buy and sell-side, leveraging technology and strong broker relationships for best execution.

Cost Savings:

Outsourced trading can offer significant cost savings by turning a fixed cost into a variable one. In-house traders and infrastructure can cost over $1 million, whereas outsourced trading allows funds to pay only for what they use, scaling as needed.

Compliance Benefits:

Compliance with regulations like MiFID II and SEC Rule 606 is critical for European and American funds. Outsourced trading providers often have processes in place for pre-trade analysis, strategy selection, and data collection to meet best execution requirements.

Mitigating Risks:

Hedge fund managers need to carefully evaluate providers to mitigate risks. They should examine the provider’s structure, separation of institutional and outsourced trading desks, and elimination of conflicts of interest. Transparency in order routing and execution is also crucial.

Control Over Traders:

Fund managers should know who is trading for them and have control over their orders. They should ensure that dedicated traders authorized by the fund are the only ones handling their assets.

Conflicts of Interest:

Managers should not be comfortable with conflicts of interest. Providers should be scrutinized to ensure they have genuinely eliminated conflicts and aligned their interests with the clients’.

Trends in Outsourced Trading:

Traditional broker dealers are entering the space, offering trading services to prime brokerage clients. More sophisticated funds may prefer conflict-free providers, while smaller managers may stick with bundled offerings. The trend also includes partnering with one-stop shops that offer a comprehensive solution, including middle-back office support and software services.

In summary, Ben Arnold emphasizes that not all outsourced trading firms are the same, and thorough due diligence is essential to finding a provider that aligns with a fund’s needs and interests.

About Meraki Global Advisors

Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Outsourced Trading Firm Staffing Up

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Meraki Global Advisors was featured this week in Hedge Fund Alert. Michael Bodley highlights our firm’s pure buyside offering and exciting growth in the rapidly expanding space. The high-quality talent and sophisticated clients we attract is testament to the one of a kind platform we offer hedge funds, family offices, and asset managers.

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Website Link to Hedge Fund Alert

Article Summary:

The article by Hedge Fund Alert discusses the growth and developments of Meraki Global Advisors, an outsourced-trading firm founded by former Goldman Sachs trader Benjamin Arnold in May 2019. Initially starting with two clients, Meraki Global Advisors has expanded rapidly, primarily within hedge funds and family offices.

To support this expansion, Meraki has hired industry veterans, including Eric Savitz, previously the head of outsourced trading at Weeden Prime Services, who will join E.J. Stockley as co-head of trading. (Since the publication of this article, Meraki has expanded to Hong Kong while also hiring traders to maintain the targeted 3:1 client ratio Meraki maintains so that clients see their trading desk as an extension of their firm.)

Meraki Global Advisors works across various asset classes and has hired additional personnel specializing in credit products to increase their multi-asset expertise. Their client base has an average of more than $500 million under management, with each client trading across various asset classes. The firm also offers back- and middle-office support functions, which have been praised for their cost-effectiveness and ability to maintain a low profile when maneuvering in illiquid markets.

One notable aspect of Meraki’s approach is that they work through brokers with whom the client already has an existing relationship, allowing the client to prioritize and allocate their commission wallet to key counterparties. This strategy is aimed at providing clients with a familiar and trusted trading environment without sacrificing access to resources.

Meraki offers a way to efficiently allocate resources while maintaining a focus on intelligent trading strategies. Benjamin Arnold’s background in both sell- and buy-side firms, along with the experience of the newly hired industry veterans, positions Meraki for further growth in the outsourced-trading industry.

About Meraki Global Advisors

Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Asset Managers Farm out Outsourced Trading as Costs and Complexity Climb

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Our Founding Partner and CEO Ben Arnold, was interviewed by Reuters for his view on the fast-growing outsourced trading sector in the era of algorithms and automation.

Read the full article here.

Article Summary:

LONDON (Reuters) – It’s 10 o’clock at night, and Benjamin Arnold’s day is just beginning. The former Goldman Sachs trader is gearing up to trade equities in Asia from his small office thousands of miles away in Park City, Utah. He’s not trading his own book, but rather is taking orders for a client, an Asian asset manager. After almost 15 years working at hedge funds and banks, Arnold launched an outsourced trading firm, joining a growing crop of niche companies aiming to tap burgeoning demand for outside help from small and mid-sized asset managers.

“There comes a time when you have to decide between standing by and watching the world change or stepping up and becoming that change,” the 37-year-old, Arnold said.

A heavier regulatory burden on money managers, razor-thin margins and rapid technological developments in trading are driving many to cut costs and hire outside firms to handle their day-to-day trading. The pace of demand has accelerated this year in particular as asset managers feel the pinch following the introduction in 2018 of the EU Markets in Financial Instruments Directive (MiFID II) which slapped more onerous paperwork on them. It is as much as 40% cheaper for small to medium-sized fund firms to hire an external trading company than employ two traders themselves, according to interviews with executives from more than a dozen asset managers, banks and brokerages, as well as industry experts.

One in every five fund firms with over $50 billion worth of assets will outsource some portion of their trading desks by 2022, according to research by financial consultancy Opimas.

The practice of farming out trading functions has been around for years, but it is becoming increasingly attractive for small and mid-sized asset managers who may not be trading frequently or in big enough volumes to justify the cost of maintaining an in-house desk. Opimas estimates it works out cheaper to hire an outsourced firm if an asset manager’s equities trader is handling less than $1.5 billion in annual trading volume.

About Meraki Global Advisors

Meraki Global Advisors was founded with a rebellious determination to deliver truly conflict-free services to asset managers. Headquartered in Park City, Utah with offices in New York and Hong Kong, Meraki provides outsourced global multi-asset trading, leverage management, and capital introduction services to the asset management industry. Meraki Global Advisors LLC is a FINRA member and SEC Registered. Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development