Author: Meraki Global Advisors

The Benefits of Having a Local Presence in the Asia-Pacific Region

For asset management firms based outside the APAC region, trading APAC markets is a challenging mosaic of regulatory, operational, and tactical matters. In such an environment, entrusting asian orders to brokers overnight and expecting the best execution outcomes has been proven to be inconsistent at best.

Building and staffing an in-house off-hours trading desk or an entire regional office has historically been the solution, but the associated costs are often prohibitively high. As a result, many firms have chosen to engage with an outsourced trading provider to optimize performance.

Due to the fragmented and competitive nature of trading in Asia, firms must take extra care to ensure goodness-of-fit with an outsourced trading provider. It would be beneficial to ask the following questions while assessing your outsourced trading provider: Is the provider truly positioned to succeed in the challenging Asian markets? Will the provider be a trustworthy partner and experienced guide in complicated conditions? 

In our experience, successful trading in Asia demands three core capabilities: (1) Careful management of order flow; (2) Deep, localized knowledge and (3) Well-established relationships. Here we explore several characteristics of Asian markets and illustrate how these core capabilities build a foundation for success.

Less liquidity for block trades

Sourcing liquidity presents different challenges in Asia than in the US and Europe. In Asia, most names are less liquid, and many countries lack dark pools – making block trades particularly challenging. 

On-the-ground experience is essential when navigating difficult liquidity landscapes. Firms engaging with outsourced trading providers should ensure their assigned traders are well versed in the idiosyncrasies of each country where securities are being actively traded, including facilitation risk options and regulations. Equally important, are close relationships with sell-side connections and local brokers for both color and liquidity. Traders with deep relationships will benefit from timely updates on blocks as well as impactful news and flows – an advantage that carries significant value.

Additionally, traders must pay special consideration to information sharing, judiciously choosing how much information is shared and with whom. While certain block desks are consistent performers, there is always risk of leakage, which can be very impactful in most Asian markets.

More volatility driven by governance and event risk

Careful management and trading of order flow is important in all markets – but even more so in Asia, where governance and event risk can be significantly more common and corrosive, driving intraday price swings that often dwarf those seen in the US and Europe. As such, the trust required to handle order flow in the most appropriate manner is higher in Asia than developed markets. If a trader simply inputs orders into an algorithm with little care or attention, the results in Asia are likely to be sub-optimal.

Diverse market structures and regulations

Given that Asia lacks a single regulatory framework – in the way MiFIDII provides structure in Europe, for example – traders are faced with a diverse array of market structure dynamics. Without the operational expertise, ever-changing regulations can prove to be complicated.

When confronting this challenge, local knowledge and relationships are of the utmost importance. To ensure timely notification of regulatory changes and potential impacts, firms should identify a trading partner who is entrenched in the local markets and connected with the street and various levels of people within relevant organizations. A broker who may be insufficiently familiar with market structures and regulations can create a range of problems, including issues with entry and exit of positions and trade settlement.

Greater retail participation

Retail participation is generally much higher in Asia than developed markets. The Chinese equity market, for example, is largely dominated by retail investors: More than 70% of turnover originates from retail participants, relative to approximately 15% to 20% in the US. 

In markets with size-able retail participation, news reported in the local language can impact markets before it reaches primary information streams, such as Bloomberg and Reuters. This is particularly true in China, Hong Kong, Japan, and South Korea. Additionally, local blogs and news sharing apps can generate huge retail interest, as does the morning hard-copy news in China.

This dynamic creates additional opportunities and risks for offshore institutional investors. Given the profound impact retail trading can have on short-term price momentum in Asian markets – for both single names and indexes – traders must be able to provide real-time explanations and interpretations of themes which have captured the attention of a given retail audience. Such capabilities stem from deep, localized knowledge and a broad network of relationships.

Improve your APAC trading with Meraki Global Advisors

The Meraki team has the expertise and access required to trade every asset class worldwide, including all markets in Asia. Our senior leaders draw on extensive experience in the region:

Donald Lee, Head of Asia Pacific and Head of Meraki Global Advisors (HK) Ltd – Don has over 27 years of experience in Asia Pacific institutional equities split between Seoul and Hong Kong. Before joining Meraki, Don held senior management positions in the APAC -wide cash equities and client executions businesses of Credit Suisse and Deutsche Bank based out of Hong Kong.

Jeffrey Ho, Managing Director of Meraki Global Advisors (HK) Ltd – Jeffrey has over 25 years of buy-side experience trading global markets in Europe and Asia. Before joining Meraki, Jeffrey was a trader at Tora Outsourced Trading, Segantii Capital Management, and prior spent 15 years at Deutsche Bank (DB) in Hong Kong where he was a Director and Senior Trader. 

Benjamin Arnold, Founder and Managing Partner – Ben previously worked as Executive Director on the equity and equity derivatives sales-trading desk at Goldman Sachs in Hong Kong and Mumbai, India with a primary focus on large non-ECM block trading. Before joining Goldman Sachs, Ben was a Vice President on the equity and equity derivatives sales-trading desk at BNP Paribas in Mumbai.

EJ Stockley, Partner and Global Head of Trading – EJ previously worked as a trader at First State Investments in the UK and Singapore, gaining global multi-asset trading experience in Pan-Asian, EMEA, and Americas markets.

Simon Kelt, Head of APAC Trading – Simon has over 15 years’ experience trading global markets in both Europe and Asia. He spent the last 10 years in Asia across Hong Kong and India, most recently at HSBC trading Asian equities with a focus on greater China market coverage where he helped develop and build out the business.

How Meraki Global Advisors can help

As a value-added service to our outsourced trading clients, we help managers create a strategic marketing strategy and increase their firm’s awareness among a unique set of investors and allocators. Our experienced team provides start-up advisory services, identifies actionable ways to improve decks and pitches, and creates prospective allocator lists for select introductions. Our services are suited for a diverse range of clients, extending from traditional long-short emerging managers in the very early stages to managers running a multi-strategy platform and existing multi-billion-dollar funds trading globally across asset classes.

As the premier global multi-asset outsourced trading firm, we take pride in putting our clients’ interests first. Built on a foundation of confidentiality, our unique conflict-free model empowers funds to garner optimal access to liquidity.

Contact us to learn more about Meraki Global Advisors’ outsourced trading capabilities and capital introduction services.

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
(646) 666-7041
mm@mga-us.com

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Family offices designed to invest and grow the net worth of ultra-wealthy families have grown in number, size, and sophistication. This has been driven by shifting economic and market forces, alongside families’ increasing desire for flexibility and control. By sharpening their due diligence, expertise, and ability to isolate the right combination of idea, team and asset allocation – many family offices have emerged as institutionalized players. These modern offices have established themselves as sophisticated investors in today’s public and private market ecosystem.

Many institutionalized family offices pursue an intensive approach supported by best-in-class service providers. Critical and complex functions—such as portfolio and risk management—are frequently outsourced to experts to attain first-in-class service. Here we examine how outsourced trading can deliver a greater level of institutionalization to family offices, which can be both cost-effective and value generative. With an understanding that each family office has unique and specialized needs, we explore various trading desk models and analyze key points when seeking to maximize the value from traders.

The opportunity to optimize trading

While many family offices have large exposures to real estate and external alternative managers, they also have exposure to yield products in the form of corporate and government bonds, FX, equities, and ETFs. Services supporting these traditional asset classes often fall short when compared to the sophisticated infrastructure family offices have grown accustomed to accessing via their alternative manager investments.

Trading family office assets is one such service with significant runway for optimization. Customarily, family offices have traded their bonds and equity holdings through private banking relationships. Trading through a private bank, however, is expensive and constricted. This approach limits liquidity sources and typically does not utilize professional highly experienced multi-asset traders.

One possible solution: Create an internal trading desk

To address the shortcomings of trading through a private bank, some of the largest single-family offices have built internal trading desks. While this solution provides a key benefit—superior execution—it requires large capital outlays to operate a single-family office, let alone the considerable costs for recruiting a team of top talent to work solely for one family. This strategy also incurs high costs to maintain the systems required to run a trading desk, not to mention the additional operational risks that follow. It is no surprise then that only a small percentage of families set up their own family office.

For most family offices, the value proposition of an internal trading desk is sub-optimal due to likely operational redundancies—most commonly, periods of inactivity during which no trading takes place. Without an immediate value additive task or project to fill the gap when traders have down time, the operational burden and fixed costs of an internal trading desk make it an ineffective solution. Furthermore, internal family office trading teams are often undersized, so execution quality suffers during busy and volatile days.

A more efficient solution: Partner with an outsourced trading provider

Family offices that partner with an outsourced trading provider garner the same—and in most cases, superior—institutional-quality execution generated by an internal trading desk but accomplished at a more efficient cost. Outsourced trading services empower family offices to cost-effectively achieve execution results in line with the high quality of service they have come to expect in the other areas of their business.

Family offices can choose from a range of models to secure the most compelling value proposition. In a variable cost model, for example, a fee is charged per trade. Family offices can also opt to pay a fixed monthly fee for all services rendered. The decision is often based on the number of trades and additional services a given firm requires.

Maximizing the advantages of outsourced trading

When considering an outsourced trading provider, family offices can maximize the potential advantage by partnering with a firm positioned to deliver on key objectives, such as:

• Alignment – Maximum transparency, objectivity and alignment are vital to family offices. As such, it is important to identify an outsourced trading provider that always puts the interests of the family office first and commits to complete alignment with family policies. Family offices should examine how the outsourced trading provider earns money—including rebates, credits and funds earned by favoring certain relationships—and seek to understand the driving forces behind the firm’s overall business model.
  
  At Meraki Global Advisors, our services are conflict-free. We are only paid by our clients for execution; we receive no other revenue streams.
  
• Confidentiality – Discretion and confidentiality are paramount. Family offices should examine an outsourced trading provider’s approach to confidentiality from multiple angles, including the number of clients covered by their trader(s) and legal protections in place. It is also important to understand the extent to which orders are visible as trades flow through the outsourced trading partner’s system.
  
  Meraki’s processes have been engineered to create an environment of ultra-confidentiality. They are tried and tested by $1+ billion hedge funds that place a similarly strong emphasis on confidentiality as family offices. Furthermore, our targeted client-to-trader ratio is 3:1.

• Risk Management – IT security and infrastructure are other operational components of data security that family offices should consider. Cyber risk, improper trade authorizations, data breaches, and fraud are all relevant to maintaining proper risk management. Ensuring your outsourced trading provider has a sound risk management framework with proven effective internal controls is paramount.
  
  Meraki conducts audits of its information and security measures to ensure the protection of all sensitive data. Additionally, Meraki has established Cyber Security Policies, which are periodically updated to mitigate risks.

• Experience – When family offices can rely on experienced traders, they feel confident that a trusted team member is dedicated to helping the office navigate both calm and choppy waters. The ability to lean on a trader’s experience-driven insight into complex situations and during moments of market volatility creates tangible value for the family office. We are experienced in trading global cross-asset. This means we can help family offices build or reduce stakes in companies through equity and/or derivatives trading and help put on hedge trades.
  
  Meraki’s team brings decades of industry experience from top hedge funds, family offices, traditional asset managers, and the world’s preeminent investment banks. With global visibility and acumen across every asset class, we are uniquely positioned to assess cross-product relationships and provide insights into the strength of potential or real market movements.

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
(646) 666-7041
mm@mga-us.com