Dude, don't take it personally. If you don't have coverage, it means you don't have account setup and all those details ready either (for start, clearing instructions, financing docs, etc). Obviously, they can't give you entitlement unless you do. Bloomberg offers a trading platform, but it's not a broker in itself. So you have set up accounts with the brokers directly.
Bloomberg terminal?
- Thread starter heech
- Start date
Bloomberg won't help you get enabled with counterparties, even if you are using one of their internal trading platforms (like FIT). Unfortunately, you have to do all the legwork to try and get accounts opened up with banks/brokers. Even if you, say, have a buddy at an IB that is willing to cover you you still have to go successfully go through the counterparty's internal new account due diligence process to be approved.
Unfortunately, at your AUM it will be very difficult for you to get coverage for OTC trades (swaps, forwards, options). As I have pointed out before, and as has been discussed in many other threads, banks are raising their minimum account size thresholds. Furthermore, even if you were able to get someone to trade with you OTC a fund your size would be subject to egregiously large margin requirements, which won't happen to you in futures. I assume you already have futures accounts, as someone your size should be able to find someone (obviously you can always go with IB).
As far as quality of coverage, you should think about it from the broker's point of view. If they are at a traditional brokerage, then any entertaining they do comes directly off their bottom line. So, it makes sense that they are going to spend their money on the clients that pay a lion's share of their income. If you assume a broker keeps something like 40% of their gross commissions, you can figure out for your yourself based on your trading if a broker is going to spend a few $100 to a couple K on entertaining you. Even if you were a $100MM fund with coverage at GS or someplace like that (where payout for salesmen is different) the most you can hope for is a couple of beers from time to time (again, IF you become friendly with the person). Is your salesman going to blow off his wife and kids (suffering the potential consequences) to take out his $10B hedge fund client who generates gobs of commisions, or you?
This info is not meant to discourage you. You have to be aware of your limitations so that you can make the most efficient and logical choices for your business.
Good, I like seeing numbers. Your answer helps me understand what makes their world go around.
It's too bad that the futures and traditional IB world seems so segregated. I generated $200k in futures-trading commissions for my FCM last year... and my AUM is already double the size it was at this point last year.
If a traditional IB was handling my business, then with that level of commission you'd think I could get *some* research / perks out of it. (I could care less about having a beer, but getting access to var swaps would be nice!) But with the FCMs out there, there seems to be no value-add to be had.
It's too bad that the futures and traditional IB world seems so segregated. I generated $200k in futures-trading commissions for my FCM last year... and my AUM is already double the size it was at this point last year.
If a traditional IB was handling my business, then with that level of commission you'd think I could get *some* research / perks out of it. (I could care less about having a beer, but getting access to var swaps would be nice!) But with the FCMs out there, there seems to be no value-add to be had.
Yea, FCM coverage these days is pretty much one-dimensional order-taking. That level of commish is more than enough to keep you as a client there but, unfortunately, it's tiny for a Goldman or Morgan.
Given that you won't benefit from any type of enhanced FCM coverage you might consider reducing your round-trips, if possible. Currently, I see you paying away over 400 bp each year in commish. Combined with a 1-2% mgmt fee (whether it's actually charged or just shown proforma) that is a pretty big headwind, especially considering you aren't earning the carry from cash these days.
Given that you won't benefit from any type of enhanced FCM coverage you might consider reducing your round-trips, if possible. Currently, I see you paying away over 400 bp each year in commish. Combined with a 1-2% mgmt fee (whether it's actually charged or just shown proforma) that is a pretty big headwind, especially considering you aren't earning the carry from cash these days.
Well, it's not as if I was driving the round-trips in hopes of getting perks.
Most of the fund is still my assets, so I have a vested interested in keeping headwinds as low as possible. I'm running a fully automated, semi-HFT black box algorithm. The number of RTs are just something I have to deal with. That said, I'm looking at doing a few things (exchange membership + new clearing firm) that will hopefully drop commission + execution costs by half. (And I don't actually charge a management fee at all, only incentive.)
Quote from heech:
Well, it's not as if I was driving the round-trips in hopes of getting perks.
That said, I'm looking at doing a few things (exchange membership + new clearing firm) that will hopefully drop commission + execution costs by half. (And I don't actually charge a management fee at all, only incentive.)
Sounds like you have the right idea. Good luck.
It sounds like a sales coverage at a primary dealer isn't particularly useful to you. For OTC stuff, keep in mind, a single smallish trade can easily net the broker $200k in commission (well, not commission, more like spread).
It's also important to note that dealers tend to regard hedge funds (the so called fast money) to be their (most important) worst clients because hedge funds tend to be extremely competitive.
It's also important to note that dealers tend to regard hedge funds (the so called fast money) to be their (most important) worst clients because hedge funds tend to be extremely competitive.
Quote from heech:
Well, it's not as if I was driving the round-trips in hopes of getting perks.
That said, I'm looking at doing a few things (exchange membership + new clearing firm) that will hopefully drop commission + execution costs by half. (And I don't actually charge a management fee at all, only incentive.)
I don't do much OTC, but in order to generate $200k from the spread, assuming a 10bp spread on a particular product (which I would think is somewhat substantial), you would have to do a $200MM notional trade. I'm pretty sure no one will do that size with a fund that has $5MM AUM. Not trying to be combative, just want to understand your statement.
Of course you are right on two levels:
-- You won't generate that kind of spread on a $5MM AUM
-- You'll see a 10bp spread on liquid products.
Pertaining to the second point, on one end you obviously have stuff like on the run treasury notes with bid/offer at 1/8th of 1/32; On the other end, you have 50Y Cancelable Swaps or odd lot non-agency MBS with the spread measured in points (although these are pretty much one sided markets). I've seen (although this was in the slightly abnormal 2008/2009 period) a $10MM trade in CMO being flipped for around 200k for the dealer.
In any case, my point was that $200k/yr is not considered significant amt of commission for OTC dealers.
-- You won't generate that kind of spread on a $5MM AUM
-- You'll see a 10bp spread on liquid products.
Pertaining to the second point, on one end you obviously have stuff like on the run treasury notes with bid/offer at 1/8th of 1/32; On the other end, you have 50Y Cancelable Swaps or odd lot non-agency MBS with the spread measured in points (although these are pretty much one sided markets). I've seen (although this was in the slightly abnormal 2008/2009 period) a $10MM trade in CMO being flipped for around 200k for the dealer.
In any case, my point was that $200k/yr is not considered significant amt of commission for OTC dealers.