Q1 Recap

Spotlight on Jefferies Content and Events:

Welcome to Jefferies. Margaret Davidge-Pitts, Brad Lutzer, and Fabio Mariani Join to Enhance Our Prime Brokerage Offering for Clients: Please welcome Margaret Davidge-Pitts, who joins as our Head of Asia Capital Introduction, based in Hong Kong, Brad Lutzer, who joins our Prime Services Sales and Origination Team, based in New York, and Fabio Mariani who joins our Securities Finance team as Head of Americas Prime Distribution, based in New York. The addition of Brad, Fabio, and Margaret will broaden our reach with key equity financing clients and bolster our overall client strategy across the globe.

• Margaret joins us from Goldman Sachs, bringing nearly 20 years of experience and expertise in helping hedge funds launch, scale and raise capital in Asia, including in markets such as South Korea, Taiwan, Thailand, Australia and New Zealand.
• Brad also brings nearly 20 years of industry experience and relationships across a broad range of hedge funds and asset managers; he joins from UBS.
• Fabio brings nearly 30 years of experience and expertise in the Prime Brokerage Industry specializing in Hedge Fund Distribution for Securities Finance.  He joins from TD Securities and has spent over 25 years at Goldman Sachs. 
• Recent Movers: Recently, our Prime Services Sales team has relocated two of our key members to expand our global presence: Ed Barnes has moved from NYC to London and Grace Qiu has transitioned from NYC to Hong Kong. These strategic moves aim to enhance our business and strengthen our offerings.

Digital Footprint of Multi Manager Funds: This piece dives into the online presence of multi-manager funds, examining how they strategically brand themselves in the digital landscape. It explores how multi-manager funds leverage digital tools to enhance their brand and communication with investors. Please reach out to your coverage for a copy.

Initiation Report: Israel Economic and Strategic Outlook 2025: Israel has been embroiled in prolonged warfare on multiple fronts since the October 7th 2023 tragedy. There are optimistic signs that Israel’s geopolitical reality could greatly improve. Click here for full PDF.

AI Agents—The Key Human Capital Question in 2025: Insights from our 3.5 years of studying human capital investing have led us to focus on the central investment human capital theme of 2025: AI agents. This note outlines what AI agents are, recent updates from MSFT and CRM, and practical steps for investors to analyze how companies integrate AI into the workforce. Click here for full report.

Industry Insights

Access Funds & Why They Have Proliferated: Access firms might have had a stigma to them, like SMA’s once did, however, the success of private wealth channels highlighted their potential for fundraising and many groups are now working with or in dialogue with these firms. These platforms leveraged fintech to streamline operational processes, reducing headaches associated with feeder funds, such as redemption docs and annual audits. This model now provides financial advisors and their HNW and RIA clients access to high-quality alternative managers across hedge funds, private equity, REITs, and evergreen vehicles, albeit at a higher cost due to streamlined operations.Main concerns for managers include:

• Failure to Raise Capital: Success often depends on brand recognition. Less-known managers may struggle to raise capital as access funds are not placement agents. If unsuccessful, managers face penalties, typically paying one year of management fees.
• New Players: Managers must ensure access fund providers can handle client reporting for QPs and AIs. Engaging a knowledgeable lawyer is crucial to protect the manager and ensure compliance.
• Liquidity Mismatch: Hedge funds may have annual liquidity, lockups, and gates, while access funds might be more liquid. This mismatch can create challenges, especially with illiquid investments. A good lawyer can negotiate liquidity arrangements and create processes for mass redemptions.

SMAs and Due Diligence: With the rise of separately managed accounts (SMAs), understanding investor perspectives on transparency and due diligence is crucial. A study by Investment Advisor Association reveals that SMAs collectively manage over $1.5 trillion in assets, with an annual growth rate of 8% over the past five years.⁵ Key points to consider include:

• Multi-ODD: Multi-Manager funds are increasingly investing via SMAs. Investors may focus diligence on multi-strategy managers if SMA managers rely on their services. However, some conduct ODD on both the SMA and commingled fund, reviewing track records, performance, AUM, staffing, and fund specifics.
• Transparency: SMAs offer increased transparency, but managers should address potential risks in SMA agreements. A study by Squarepoint encourages managers to ask about internal trading strategies, shadow alpha declarations, reasons for Pre-EOD transparency, willingness to adopt confidential information language, and gather references from other PMs to mitigate risks arising from this transparency. ⁶
• Ring-Fenced SMAs: Ring-fencing is typically non-negotiable and built into the platform by asset owners. While it provides a form of separation, sleeves can still be affected by other managers’ portfolios. Some SMA platforms incorporate ring-fencing, often structured as segregated portfolio companies or series LP/LLCs, preferred for asset separation. Combining sleeves can offer better margining, and managers are compensated for their performance regardless of others’ outcomes.

Midtown Office Reports: Multiple brokers reported that 2024 saw the highest yearly leasing volume in NYC since pre-pandemic levels, marking a significant increase from 2023. Despite this, rents have not seen much increase as vacancy rates remain higher than pre-pandemic levels. This trend signals a substantial return to office spaces, with new businesses also seeking short-term options during their launch phase.

• Coworking Space and Short Term Rentals: Sublease terms range from 1 to 2 years, with even 1-year leases being rare. Landlords typically avoid leases shorter than a year due to transaction costs, and the length of the signing process. For coworking spaces in Midtown, many managers will consider options like Studio or Industrious, or go directly through major landlords like Tishman or SL Green.

Service Provider Trends: Emerging trends in the service provider community are shaping various verticals.

• AI and Compliance:  There are growing offerings around AI and expert network calls, along with the implementation of AI policies. Cyber compliance is also seeing more attention, with many CCOs updating policies to include AI and data usage clauses.
• Middle Office Services: Outsourcing services for data, operations, treasury, settlements, and collateral has been gaining popularity, especially among new launches with an in-house CFO. This trend helps address the ongoing struggle to find junior talent to support senior staff.
• Trends around Technology: There’s a rise in “lite” offerings as many more managers are increasingly focusing on technological developments showing interest in software earlier in their life cycles with limited access to capital.

Regulatory Corner

Korea Update: As you may be aware, The Korean market will lift its short sale ban on March 31, 2025. In advance of this, the Financial Services Commission in South Korea and related organizations have announced guidelines and control measures designed to eradicate naked short selling of stocks traded on the Korean Stock Exchange. Jefferies’ offering of Equity Swaps product in Korea will continue uninterrupted, and our upgraded position management system will fully abide by the new rules.

• Global Offering: As part of Jefferies’s expanded global offering, we are pleased to share that we will be able to offer our equity swaps product in South Korea to facilitate short sales. Jefferies SWAP clients can synthetically short Korea equities again from this date.
• Pre-Borrow: Korea is a pre-borrow market, meaning borrow needs to be secured with Jefferies Financing desk before any short is executed. While the previous short sale universe was restricted to the KOSPI 150 and KOSDAQ 200 names, this is not the case now. All Korea equites are in scope (subject to certain exclusion names designated by the exchange (Offshore ETF / Synthetic ETF / ‘Overheated’ short sell names).

Proposed Increase in Endowment Tax: Policymakers close to President Trump are considering raising the tax rate on university endowments to combat the U.S.’s fiscal deficit. The 2017 TCJA introduced a 1.4% tax on endowments for universities with at least 500 students and assets exceeding $500,000 per student.¹ Rep. Troy Nehls proposed the Endowment Tax Fairness Act to increase this tax to 21%, matching the federal corporate tax rate, while Rep. Mike V. Lawler suggested a 10% hike.²

• Impacts: Colleges argue higher taxes would reduce their ability to support financial aid, research, and faculty, impacting spend targets and asset allocation. Universities may be expected to adjust their portfolios, potentially increasing risk or exploring more tax-efficient strategies.

Enhanced Scrutiny on FCA’s ‘Name and Shame’ Proposal: The FCA’s “name and shame” plan requires early disclosure of investigations to increase transparency and deter misconduct.

• Outcomes: Hedge funds fear reputational damage and unnecessary investor withdrawals, noting that 2/3 of past FCA investigations ended without enforcement.³ Revised rules still concern hedge fund professionals, who worry it could deter business in the UK.⁴ AIMA recommends limiting disclosures to cases of immediate mass market harm or public knowledge. Investors should be aware of potential impacts on fund performance and market perception due to these disclosures.

Please reach out to your Jefferies contact for more information on any of the topics above.

Interesting Service Provider Reads: Highlighting Topical Content from Industry Leaders

ACA – SEC Marketing Rule FAQs for Gross and Net Performance of Extracted Performance

AIMA – Hedge Fund Confidence Index

Akin Gump – SEC Staff Says It’s OK to Just Be Gross

Carne – 2025 Change Research Report  

Citco – Citco 2024 Middle Office Solutions Report – A Year in Review

FiSolve – Weekly News Digest: March 21, 2025

IQEQ – Roundup: SEC’s off-channel communication enforcement continues

SRZ – EDGAR Next: Preparing for the SEC’s Filing System Transition

Jefferies Prime Services Contacts:

¹Tax Foundation, New Efforts on Taxing Endowments Raise Questions on Neutrality and Revenue Collection

²Congressman Lawler Reintroduces the Endowment Accountability Act to Ensure Wealthy Universities Invest in Students

³Financial Times, FCA backtracks on plan to ‘name and shame’ probed companies

⁴Alternative Fund Insight

⁵Investment Advisor, Industry Snapshot 2024

⁶Squarepoint, Position Paper: Handling SMA Transparency with Responsibility

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THIS MESSAGE CONTAINS INSUFFICIENT INFORMATION TO MAKE AN INVESTMENT DECISION.

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