Matthew Doran and Lou Lebedin talk to SLT about the launch of consultancy firm Doran Jones, as well as how a past at J.P. Morgan can help to grow the business
Could you give a brief summary of your firm and its various offerings?
Matthew Doran: Doran Jones is a full service, end-to-end financial services consultancy. We launched the firm in July 2010, with an emphasis on technical execution, as I strongly believed a void existed for high value, but overall lower cost-consulting solutions.
Initially we offered everything from project management and business analysis to technical development and support; as this was the basis for growing the firm. Just recently both Lou Lebedin and Duncan Rawls have joined the firm to launch the strategic consulting end of the business.
Duncan Rawls, whom I have known for a long time, introduced me to Lou Lebedin. We quickly agreed that Lou would be the ideal person to lead the business consulting function as well as becoming the COO. We all recognised that the timing was right to focus on strategic consulting services.
Strategic doesn’t imply a conceptual practice as we are primarily execution focused. That means we are not a firm that will walk in and just leave a whitepaper—most of which are obsolete once you walk in the door. Our ultimate goal is to produce strategic and tangible deliverables.
Regulatory changes such as Basel III and the liquidity coverage ratio (LCR) have resulted in increased work and overall focus in the risk space. Many of our top-tier clients have started allocating more work to us given our competency and expertise in risk. Since Lou and Duncan have joined the team, we have also started to see increased traction with prime brokerage firms—as well and within the hedge fund/asset management community overall. This has increased the number of new clients, as well as our footprint with existing clients.
How are regulations affecting your business?
Doran: Increased regulation is the primary driver for consultancy practitioners. We have noticed there is not a great deal of clarity—and in some cases transparency—around the interpretation of some of the new regulations. I believe this issue will be addressed within the next six to 12 months.
Lou Lebedin: The new regulations particularly pertain to finance activities or businesses that consume significant amounts of balance sheet, like prime brokerages. Effectively, the new regulation require more capital and longer term funding, therefore there is increased sensitivity about how much balance sheet and funding a client can consume. The leadership within prime brokers are in the process of evaluating the rule changes and ultimately defining the optimal size of their business—combined with the appropriate construct of their client base. Most prime brokers are likely meeting with their clients—the hedge funds—to assist them in understanding the implications of these changes and how they may ultimately affect how they conduct business. Clearly, there is a belief that pricing will adjust as a result of these new requirements.
How does your past experience at J.P. Morgan help with your role at Doran Jones?
Lebedin: I was the global head of J.P. Morgan’s prime brokerage business for a total of six years—four years following the acquisition of Bear Stearns by J.P. Morgan, and two years before the acquisition. As the head of a global business, I had the opportunity to build and manage a world-class platform and reached top tier asset management—hedge funds and traditional long-only, as well as pensions, endowments, and family offices. I dedicated a great deal of time understanding the implications of the new regulations and developed tools that enabled the firm’s clients to develop appropriate benchmarks. That experience afforded me to the opportunity to advise firms that were looking to expand their own offerings or simply to comprehend the new regulatory requirements, as well as defining a strategy to optimise their business in light of the new thresholds. In addition to Doran Jones being able to provide advisory services and market colour, we provide project management, business analysis, application development and support, as well as vendor integration to assist our clients in meeting their goals and objectives.
How are funds’ increased interest in more listed and centrally cleared products affecting prime brokers?
Lebedin: The people I’ve spoken with recently have indicated that it is still the very preliminary days with regards to business growth. Right now many firms are setting up OTC clearing accounts and using futures as a means to gain exposure to those markets.The market has yet to really take off. There is every indication that it will, but it’s just too early to tell at the moment.
How have you seen the relationship change between hedge funds and prime brokers? What are hedge funds asking for that they weren’t in the past?
Lebedin: From 2008 and onwards, there was a great deal of movement as a result of counterparty risk. Many firms went from having one or two prime brokers, to having between five and eight and since that time there has been a little bit of consolidation, which has been the result of decreased concern about counter-party risk and financing balances not being as high as it was pre-2008. That being the principal currency by which they reward prime brokers, combined with funds’ desire to be relevant to their prime broker, will need to revisit their relationship and consolidate to those who provide the most value. There have been three-five firms that have picked up market share following that consolidation.
What changes has there been to operational support and consultancy for prime brokers?
Lebedin: A few years back, prime brokerage consultants primarily worked with start-ups. The growth in start-ups has been moderate at best. It has been challenging for them: many are required to take seed money as they have not been able to get third-party investors. The consulting groups have dedicated much of their efforts to larger firms to create more efficiency in their infrastructure, as well as deal with the new hedge fund regulation introduced in the last two to three years.
There are many funds with multiple prime brokers that are also likely dealing with a custody bank to house their unencumbered assets, so they’re still challenged with the ability to manage their collateral efficiently. This is where we see opportunity. We have both third-party solutions and we can help customise solutions by building them ourselves, and/or provide technology platforms to help augment their existing systems. We have had numerous conversations with funds and recognise there is a great need in this area.
Are you seeing more transformation/repackaging of collateral, or are clients shuffling their portfolios of assets to free up collateral?
Lebedin: We haven’t heard of a lot of actual transformation happening yet, although it is still early. There are currently efforts underway, both on the sell- and buy side, to track their collateral more efficiently. As a result of new capital requirements, balance sheets are becoming more scrutinised and banks are trying to generate better returns on these balance sheets.Therefore, the construct of the client portfolio will define what’s meaningful or not for that particular bank. As we survey these banks and get a sense of what they are focusing on—as well as what they are looking for—we can help define changes and also be able to manage relationships appropriately. Conversely, we can sit with hedge funds and allocate those assets accordingly, since we now understand what is important to the prime broker. Funds that typically don’t have a robust infrastructure may not appreciate all these changes, so as a third party well versed in prime brokerage can help those clients appreciate those changes, and provide the necessary system development.
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