Robert Moore, a former head of U.S. equities trading at Citigroup Global Markets, has been tapped to run the trading desk of Concept Capital Markets, a soon-to-be-launched agency brokerage partly owned by Sanders Morris Harris Group.
The Houston-based regional investment bank will spin off Concept Capital, its prime brokerage division, in the second quarter. Under the trading leadership of Moore, Concept plans to expand its business by hiring 15 or 16 traders to cater to large institutions.
The firm is counting on institutions’ growing skepticism about the ability of bulge-bracket firms to service them effectively to build out its new desk. “There is confusion among clients in dealing with the big firms,” said Moore, managing director and head of trading at Concept, who joined the firm in December.
“Demand within the bulges to use their balance sheet and to increase the amount of proprietary trading they were doing has put them on the same side of the fence as accounts, so they’re competing with accounts that they’re supposed to be servicing,” Moore said. Buyside traders see that clearly and aren’t happy about the conflicts, he added.
Michael S. Rosen, a managing director at Concept, said the firm will pursue larger institutional accounts and larger hedge funds in the coming months. Concept currently focuses on small and mid-size hedge funds, with about 20 percent of its business coming from traditional institutions. The firm provides prime brokerage and hedge fund services, including agency execution, connectivity, risk analysis and client reports.
Concept will be renamed Concept Capital Markets once it’s an independent company. The firm currently uses SMHG’s broker-dealer license but plans to acquire an existing license by the time it’s spun out. SMHG, which will hold a 50 percent stake in Concept Capital Markets, is also spinning out its investment banking division to Siwanoy Capital, a new firm formed by executives at several SMHG units and Pan Asia China Commerce Corp. SMHG will own 20 percent of that firm.
Concept hopes to reel in more business as the buyside shifts some of its flow away from the bigger firms and toward smaller houses. Moore noted that the reign of bulge-bracket firms is shakier than it’s ever been. “The reason clients were doing business with large firms for the last several years is they used an enormous amount of capital and they had an incredible calendar of new deals and secondaries,” he said. “Those two important pieces of the puzzle have been taken out. There’s very little capital being used on the Street and there’s virtually no calendar.”
Moore left Citigroup in 2004, after a two-decade career there that started at Smith Barney, because big banks, in his view, were increasingly treading the same turf as their clients. During those years, Moore ran listed and Nasdaq trading, as well as e-commerce businesses, and was head of trading in Citigroup Global Markets’ U.S. equities division when he left. Moore worked in private equity for the last few years.
Concept believes there are now wide-open business opportunities for innovative new firms in the wake of the biggest investment banks disappearing or becoming commercial banks. To expand its trading breadth, Rosen noted, Concept will shift from a more “direct-execution-type business” to a more high-touch business.
Rosen pointed out that with most asset classes down at least 30 percent last year and redemptions still taking place, buyside firms are under pressure to work more efficiently. “They won’t have the resources or number of bodies at their disposal that they once had, and they will have to fulfill their needs by outsourcing orders to traders they trust to work them during the day,” he said. “We will take advantage of that trend.”
By the end of the year, Rosen predicted, the broker will triple its sales and trading effort to two-dozen traders. The firm will also roll out an internally developed front end for hedge fund clients, called ConceptOne next month.
Moore added that Concept will hire traders with high-touch experience and relationships with the buyside, not electronic traders. “There are very high-quality people on the Street [who are] either working but unhappy, or out of work and looking for a trading job,” he said.
New buyside business, in Rosen’s view, will be won first and foremost through a strong research offering. Concept plans to acquire an independent research house in the coming months, Rosen said. The firm is currently in talks with several research outfits. Based on the scope of that research, the broker will hire sales traders to cover new accounts.
Moore agreed with Rosen that a strong research offering is key to building Concept’s trading desk. “When funds are down 30, 40 or 50 percent, they want idea generation,” he said. “It starts there, and then is about trading and sales.” He added that the research budgets at large firms has been “decimated,” leaving a wide opening for smaller firms that can service institutions. “If clients are not using bulge-bracket research, they’ll look elsewhere to get new ideas,” he said.