In light of the recent bank failures, Appomattox is proud to highlight for our clients some examples of the significant structural advantage of investing in alternative assets classes focused around gaining access to systematically important financial institutions (“SIFIs”) such as custodians and prime brokers.

Most large alternative asset managers use at least two and often more SIFIs such as Goldman Sachs, JP Morgan, Morgan Stanley, Bank of America, and Bank of New York. Managers can shift between those institutions both on pricing and perceived safety and soundness of the institution. Even smaller and start up managers who use smaller prime brokerage firms achieve the structural advantages of larger SIFIs because these smaller prime brokers usually aggregate their buying power with at least two SIFIs who serve as custodians.

Our clients as investors may find challenges in obtaining direct access to these SIFIs vs. the advantages of investing through alternative asset managers via Appomattox. For example, alternative asset managers are often able to leverage their scale to negotiate preferable terms that an individual investor would not be able to negotiate directly. Furthermore, frequent monitoring by the individual investor would be required to assess the health of the SIFIs. Should there be a material risk identified, an individual investor is also less likely to have the leverage to move assets away from the SIFI as quickly and efficiently as an alternative asset manager. Access to a SIFI through an alternative asset manager also provides an avenue to maintain client confidentiality for those clients where this is important since it is the alternative asset manager that is facing the SIFI rather than the individual client.

Initial due diligence and ongoing monitoring of the SIFIs by the alternative asset managers is paramount to this process to mitigate risks and potential loss of assets. Typically, these assets managers utilize technology tools to obtain daily financial information about the SIFIs which can identify issues early. Additionally, managers maintain regular interaction with the SIFIs as a further measure of ongoing monitoring.

Investing in alternative asset managers through Appomattox provides an additional layer of scrutiny for this process, which is an additional benefit to our clients. Our operational due process includes screening both the SIFIs utilized by our alternative asset managers, as well as understanding the processes in place for continual monitoring. Our relationships with our alternative asset managers provide us with direct access to these managers to further assess when issues arise. For example, during the recent bank crises, Appomattox conducted outreach to all our managers to understand the direct exposure and potential impact on our clients as a result of these failures. At Appomattox, we call this a belt and suspenders approach to safeguarding our client’s assets. It is one of the many tools at our disposal, but a powerful one.

Please contact us for more information or any questions.

Appomattox team: 212.895.3000, [email protected],

Related posts