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June 18, 2008

BTIG Bonds With Goldman Sachs

By Peter Chapman

Agency brokerage BTIG LLC, following an investment last month by Goldman Sachs, is poised for growth.

The bicoastal broker-dealer, co-headed by a former Goldman trading executive, accepted a minority investment from the bulge bracket bank in order to bolster its image abroad and set an initial valuation for the firm.

"We thought it was important to have a strategic partner for the long run," Steve Starker, a BTIG co-founding partner, said. "This helps with our credibility overseas."

BTIG, the result of a merger three and a half years ago between two small brokers based in San Francisco and New York, has largely completed its U.S. expansion. It is now looking to Europe and Asia for growth.

The firm recently hired 23 traders from the now-shuttered Hong Kong and Australian offices of E*Trade and has plans to open a London office by the end of the year. It expects to soon open its seventh, and last, domestic branch in Los Angeles.

Starker explained that BTIG could probably have funded its expansion by itself, but chose to go with Goldman for strategic reasons. "We are well known in the U.S.," he said, "but there's a good chance that XYZ Fund in Hong Kong has not heard of us. That changes with Goldman on board."

Goldman was not the only interested party, Starker noted. Venture capitalists and at least one large international bank were also eager to invest in the rapidly growing BTIG. The firm now has about 175 employees, including the 23 overseas.

Goldman was the last to knock on BTIG's door but won the brass ring. Neither are strangers to each other. Starker spent three and a half years with Goldman after his firm Spear, Leeds & Kellogg was bought by Goldman in 2000; he was a partner in charge of trading at SLK.

Goldman, in fact, played an important role in getting Starker's Bass Trading, one of BTIG's two predecessor firms, off the ground with a minority investment in 2003.

BTIG clears through Goldman's clearing group and also has an introducing brokerage relationship with Goldman as part of its prime brokerage operation. BTIG caters to many small hedge funds that Goldman does not work with.

For Goldman, the investment in BTIG is one of several the firm has made over the years in the trading arena. Goldman has taken stakes in the Archipelago ECN and the electronic agency brokerage UNX, as well as Eze Castle Software, an order management system vendor.

"Goldman saw this as an opportunity to invest in a high-touch agency model, which they don't have," Starker said.

BTIG will continue to operate as an independent firm, majority-owned by its employees. Goldman, whose investment is "less than 20 percent" of BTIG, does not have a seat on BTIG's board, nor any day-to-day involvement in its operations, Starker added.

Although Starker said there are no plans to sell BTIG anytime soon, the Goldman purchase does put a number on the firm that could be valuable down the road.

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