Valbury is a relatively new broker in the multi asset space, what was the incentive for setting it up?
Valbury Capital was founded in 2010, so I wouldn’t call it a new broker.
The incentive to establish the company was an anticipated return of the specialist mid-market, that sector of the financial markets that sits between the institutional investment banks and the retail firms.
Both the retail and institutional markets are already well covered by established firms, but there is a rapidly emerging client service gap between them. That sector what Valbury was established to service.
The new millennium saw an increasing automation of the back office, the dismantling of the Glass-Steagall Act and the drop off in interest rates. These and other factors combined to eliminate the mid-market as a coherent sector, with the Investment banks and inter-dealer brokers increasingly moved into mid-market as part of a macro strategy of volume consolidation
At the same time, the requirement for firms to provide clients with increasingly advanced electronic trading platforms, supported by new complex, and often proprietary technology made many medium sized firms willing targets for acquisition in order to access the required Tech infrastructure.
Following the financial crisis, these conditions have largely reversed. Regulatory, capital and compliance changes have increased operating complexity, risk and cost; and the technology barriers to entry have significantly reduced, as trading platforms and the supporting technology becomes increasingly standardised and widely available We are consequently seeing firms retreat from mid-market products and services, and leaving a significant service-gap for clients, who are perhaps no longer natural customers of the institutional firms, but need a more sophisticated service than mono-line retail firms can accommodate.
The return of the specialist mid-market broker? VCL was established to service this anticipated trend
What did you do before,setting up Valbury in the UK?
My background is in US inter-dealer broking firms.
My career started with Arthur Andersen, joining ABN Amro shortly after qualifying.
Early on, I was fortunate to work directly for the board executives who were developing AMRO’s London investment banking business.
In my late twenties, I joined the European board of Cantor Fitzgerald, now BGC, working directly for its then CEO, Lee Amaitis. This was a significant period of change and a tremendous learning experience for me personally. The company was rapidly evolving and technology was starting to materially impact the business. My time there included the development and subsequent float of the s-Speed trading platform, and the expansion of their equities and derivatives businesses. The CF business model, management and implementation methods were a major influence to me personally.
I joined subsequently the board of Refco’s European business as part of their strategy to significantly expand and develop their European and Asian businesses. We had significant success in terms of both business expansion and profitability, partly through the aggressive acquisition of mid-market businesses.
Refco’s London based board subsequently completed a private equity backed MBO of the Refco Europe businesses in late 2005, which became Marex (now Marex-Spectron).
I was however increasingly interested in the potential opportunities emerging in the mid-market, and I took the decision to leave Marex with a view to establishing a specialist mid-market firm to service clients in that sector. I was introduced to our Asian investors by an international law firm and Valbury Capital was born.
What’s been your proudest moments so far?
Despite the technology changes, the financial markets remain essentially a people business, so my proudest moments are people related.
I remember walking into the Refco trading room with the other directors to announce that we had completed the acquisition of the business to create MAREX. The way our European business weathered the Refco storm, and re-emerged successfully as MAREX, was a tremendous achievement by all the staff that was there. Ten years later Marex-Spectron remains a successful business, and I remain a shareholder, but during that extremely uncertain period I cannot recall losing a single staff member.
Another highlight for me was putting the Valbury team together; I started with two desks, one for me and one for the photocopier. Not many people get the opportunity to start literally from scratch. To see this develop to our being invited to open the London Stock Exchange trading day as Valbury Capital was personally a proud journey. The invitation was a huge honour for the company and staff, and the event was picked up and covered well by the Asian media.
Anything you wish you’d done differently throughout your career?
Many things! But I have increasingly learnt that it’s important to accept that you are not going to get everything right all the time. Sometimes things change, they develop in unexpected ways, or your initial thinking is just plain wrong. I better understand that you have to keep flexible and nimble with your thinking, listen a lot to those around you, both internal and external, and I still read a lot of books. As CEO, you’re always learning from colleagues and clients, but ultimately you are the one paid to take the key decisions.
I think the UK is perhaps less accepting and tolerant of this than US- led firms, so I was very fortunate that early on in my career I was able to work alongside US CEOs who understood that you have to innovate and develop. You make decisions, and sometimes you’ll get it wrong or things won’t work out as intended. I very much respect people who have put themselves out there by building a business, running a key project or building new product lines.
The US brokers operate an extremely flat management, with nowhere to hide, but that also means they can move fast. That’s one reason why they are always amongst the leaders in terms of development and innovation – and I learnt from that.
As smaller and mid-size funds look for alternatives to the tier 1 brokers, what’s your main source of new customers?
This question is the reason we established Valbury Capital. Mid-sized firms are looking for alternatives to tier 1 brokers, and we seek to fulfil these requirements
We are a traditional relationship broker. Our new clients mostly come from sheer hard work of our sales and execution staff. As our business develops, and our name becomes more widely known, the proportion of referral and direct approach is increasing, which is generally a good sign of progress.
We travel more than we have done in a decade, as clients seek a return to that ‘traditional’ relationship. These trips are incredibly valuable for me personally. I get direct feedback on what client need, how they want us to develop and improve the company.
Marketing and advertising has its place but this personal relationship-building is paramount to our business model.
Is there a specific type of investor/trader you look for?
Our clients are defined by our mid-market positioning. The small retail and institutional sectors are already well-serviced by the various established investment banks and well known retail providers.
They service their client sectors well, but they are also increasingly optimised for those sectors, thereby defining our business model and typical client as being one who requires a range of services and products not generally provided by the retail sector, whilst seeking a level of client service and attention that they are finding is increasingly difficult to obtain from the larger institutional firms
I would add that we seek to select staff who matches our client needs and profile, again with a focus on strengthening our client service and those ever important client relationships.
As the brokerage industry consolidates and expands with technologies, who do you consider to be your main competitors. What are the tech- based benefits of Valbury Capital?
This is probably the question I have often been asked most often, both when establishing MAREX and now at Valbury.
Then as now, I can see no clear direct competitors – in contrast with the retail and investment banking sectors, which are well defined and well serviced.
This in itself represented a key challenge for me when establishing Valbury Capital – there was no obvious competitor or business model to analyse. I literally started with an A3 sheet, mapping out what I thought a mid-market broker represented, in terms of ethics and products. Mostly, I think I got it right. Some of it I didn’t, and our plan and model has evolved in response to direct feedback from clients and staff, and also to the rapidly changing environment in which we now operate.
The impact of the repositioning of the market is deeper and faster than I had anticipated. We believe consolidation will continue in the investment banking and retail sectors, and will be relentless. Primarily this is now being driven by regulatory and compliance changes, rather than the technological change which primarily drove the changes in the 2000’s.
The mid-market was pretty much eliminated mid-2000’s through acquisition. Now mid-market is expanding as clients demand it. We see this trend across financial markets, not just in brokerage. It’s driving the re-emergence of the mid-market firm.
Technology is now a facilitator of this trend, not a threat or a barrier. There are now business areas open to medium-sized firms that were simply not possible a few years ago due to technological constraints.
However, for us technology is a tool. It’s critical, but nevertheless it’s something that sits alongside governance values, client service and top quality execution.
Many financial firms have evolved into tech firms, and they often lack the people and client skills that we nurture.
With more brokers doing business online, is the bulk of your business voice or electronic trading?
The bulk of our business, perhaps outside of FX, is voice brokered.
Obviously, we provide our clients with the trading platforms that they require; PATS, TT, MT4 et cetera, but these are increasingly commoditised and standardised.
Time is a very precious commodity for many of our clients, alongside effective execution, and they often find it more convenient to use our services rather than being stuck in front of a screen.
Valbury was originally setup in Asia, do you see much two-way business in the Asian markets, as you are based in London?
Our investors are based in Asia, but VCL is very much an independent London firm. We did it the hard way, our revenue is entirely from own sales. Our investors own existing Asian-based financial service businesses, and we are seeking to further develop our ties with these businesses, particularly in equities and corporate finance. This is a key personal objective.
Do you focus on the Asian markets in terms of execution and research?
We are deepening our focus on both Asia and Africa. We see both markets as particularly suited to medium sized and specialist firms.
We see both as core markets for mid-market firms, and we are exploring opportunities in both.
We don’t currently provide research, but we will be reviewing this carefully post-MiFID II. As ever, we’ll be client led on this. We’ll focus on areas where we can add value, areas that are less well-covered at our level, such as Asia, Africa and mid-cap stocks.
Are you prepared for MiFID II/Basel III and will they have a big impact on Valbury Capital?
The regulatory changes are game-changing. You probably have to go back to 1987 and 2001 for similar environments. They’re also one of the key drivers in the re-emergence of the mid-market firm.
The initial impact is probably the more straightforward to prepare for, ensuring compliance with the required rules, regulations and meeting technology requirements, such as with respect to transaction reporting.
The secondary impact is less straightforward to analyse. These changes are significantly increasing the cost, complexity and risks of operating in the financial markets across many areas and products. We are already seeing the secondary impact of these factors, as firms respond through reduction and even cessation of services in certain business areas.
However the financial markets have always been subject to change and the current environment will lead to new opportunities for firms such as ours, and to clients demanding new and additional services
What about your future plans for Valbury Capital?
In common with most financial firms, the short-term goal is to successfully incorporate the regulatory environment being implemented in 2018.
Medium-term, our strategy is to deliver growth, whilst remaining client-driven and focussed. We need to respond well to the new market environment, and to develop the resulting services required by our clients. I’ve no doubt that in the mid-market we’ll take a primary role providing these emerging niche services. It is difficult to predict precisely how that change will play out, but the successful business in our space will be adaptable.
Clients trading platform needs are increasingly commoditised, so our platform-neutral strategy serves us well. We adapt to our client’s preferences.
Clearing services are become increasingly fragmented to clients, so we will have an increasing role in aggregating clearing services from multiple providers to provide a seamless service to clients and to provide a blend of clearing services to suit specific client requirements.
We continually develop our post-trade service technology. This is partly driven by clients increasing own transaction reporting needs, but as a trend, clients increasingly require automated, seamless data services, post-trade.
What do you think makes Valbury Capital stand out?
There are few, if any, brokers in our space offering clients our range of products and services. We’re a traditional broker. First and foremost, our business is built on our market access and the quality of execution, providing clients with the full range of cash and derivative products; equities, fixed income, foreign exchange, commodities.
Our desk and execution teams are highly experienced, generally gained from the IDBs, and they can support clients with extensive product and market knowledge. Execution is delivered through market-standard trading platforms, Bloomberg or via voice execution directly with the desks.
We’ve listened and responded to our client’s needs. Our service is flexible, developing bespoke service solutions to meet their specific needs. And we stand by these service values.
For example, we are non-conflicted; we do not engage in proprietary trading or market making, and therefore have no potential conflict with our clients’ interests. This is not as a result of regulatory change, it simply reflects our core client values
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.