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November 1, 2010

Agency Shops See Future and Merge

By James Ramage

The bigger, the better. That's the philosophy at a new brokerage firm that is the result of a merger of three agency brokerage outfits.

Gus Phelps

The new firm is called NavPoint, and it bands together Seacoast Partners, Nova Cap Markets and Blue Trading. NavPoint has also locked in exclusive relationships with a research firm, Equity AS, and a capital introduction specialist, MMX Group.

In a low-volume, tight-commission environment, it remains to be seen if this merger becomes a blueprint for small agency brokers and their survival. But execs at Boston-based NavPoint are sure their plan will succeed.

With its new arrangement, said partner and co-founder Gus Phelps, NavPoint should reach a broader selection of its target audience--namely, money managers, mutual funds and hedge funds.

"We look at improving our offerings and signing more agreements, more relationships with people, as well as increasing distribution," he said. "That's signing more sales traders. This is the beginning of a growing entity."

NavPoint now has 17 sales and execution traders, covering more than 60 accounts, Phelps said. And those account numbers are already growing and bringing in more trading, he added. Phelps wouldn't offer projections for account or volume growth.

But he said that each of the three brokerages was profitable prior to banding together two months ago. And NavPoint collectively is profitable, as well. Phelps would not reveal its current revenues, but projected the firm would see "high double-digit growth" over the next year.

The firm focuses mostly on domestic equities, and options to a lesser degree. It clears through Goldman Sachs, and so has the opportunity to trade more asset classes, Phelps said.

That's important, because equities volumes have been down significantly for the year. And NavPoint's client base hasn't been particularly active in domestic equities.

Ultimately, merging will help NavPoint spread out to more clients, Phelps added. "Before, we were multiple bit players competing for that slice of the pie," he said. "Now we're one bigger player, with even more ability."

One longtime industry pro said NavPoint has its work cut out for it. The buyside has many places to go with its domestic equities order flow, he said. It is increasingly trading its largest names itself through algorithms and is often obliged to send orders to its largest brokers for services.

"It is a very tough place to make it work," the pro said. "You're hoping for those one or two rebalance days a month, or when your client is so busy that they need to basically sub out a couple of these orders, which tend to be labor-intensive. And that's where NavPoint would come into play."

But NavPoint has some advantages, he added. It is small and likely doesn't have a lot of overhead. NavPoint is also focused on the Boston and New York area. It's developing a high-touch business through keeping a small number of clients, the pro said.

"They're trying to bring on products that will expose them to a bigger slice of the pie," the pro said.


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