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July 6, 2009

Former Buysider Leads New Firm

By James Ramage

Like many small, independent brokerages, Penserra Securities is expanding into new lines of business and adding head count. But what makes this firm's story different from other startups is that it was cofounded by someone from the buyside.

George Madrigal, who oversees New York-based Penserra's day-to-day operations, started the firm after 14 years at Barclays Global Investors. He was a portfolio manager there and got his first taste of brokerage when he later helped start one while leading the firm's transition management business.

Madrigal, whose firm qualifies as an "emerging" or minority brokerage, explains that he saw an opportunity to do program business with pension funds. The trick was having a good product to offer.

Now the upstart firm is expanding from programs into the single-stock business. Penserra recently hired 20-year veterans Robert Goddard and Lee Geiger to lead the sales trading operation in Orinda, Calif. The two both worked at San Francisco-based JMP Securities and BancAmerica Securities/Montgomery Securities.

Prior to the new office, the firm strictly traded baskets. "We didn't have the high-touch services required for fundamental shops," Madrigal said. "We saw a growing appetite for that in the market."

Madrigal expects the sales trading business to account for up to 33 percent of revenue within two years. He declined to give specifics on current or projected revenue for the firm.

George Madrigal

The firm has three program traders, one corporate buyback trader and now two sales traders on the West Coast. A year from now, Penserra expects to add about two traders when it moves into trading baskets in Asia. On the sales trading side, he expects to add up to two traders, as well. "We'll continue to grow that desk as long as there's an appetite for it in the market," he said.

In 2006, Madrigal and retail businessman Fernando Mateo began putting Penserra together. The two saw how pension plans are mandated to trade with emerging broker-dealers, based on the demographic makeup of their beneficiaries, Madrigal said. He soon discovered that many emerging brokers outsourced their orders. "I thought: That's not the right way to do executions, in general," Madrigal said. The window of opportunity was there.

"Having set up a broker-dealer for Barclays, I understood the regulatory and compliance issues and some of the technology that went into it--at least at a high level, how to piece this together," he said.

Madrigal took his experience in launching an affiliate broker-dealer for BGI's transition business and his quantitative understanding of portfolios and leaped into the brokerage business.

"I thought that we could take portfolios, look at them in a very quantitative way through TCA and do a job that would be analogous to a bulge bracket firm, but coming from a small, emerging broker-dealer," he said.

As a minority-run shop, Penserra competes specifically in a niche of minority- and women-owned broker-dealers, Madrigal said. Many pension plans with diverse ethnic beneficiaries are mandated to do business with vendors-including broker-dealers-that are representative of the same demographic, he added. A large percentage of Penserra's business comes from these mandates, Madrigal said.

Last fall, Penserra started a program trading desk and then shortly thereafter moved into trading international baskets. Seeing opportunity--and available talent--the firm added the two sales trading veterans, Goddard and Geiger.



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