Aaron Hantman is CEO of Tourmaline Partners, a provider of outsourced trading services.
What were the key theme(s) for your business in 2020?
It’s safe to say that growth was the key theme for our business in 2020. While interest in outsourced and supplemental trading has grown rapidly in recent years, the record volume and volatility in March and April magnified our value proposition as a trading solutions firm. We are now seeing an institutionalization of outsourced trading – evidenced by demand from investment managers of all sizes, and not only for economic reasons but to improve and augment buy-side trading workflow. This is consistent with the overall growth of our business, which we fully expect to continue in 2021.
In addition, Tourmaline received a majority investment this year from Copley Equity Partners, a private investment firm that focuses on established businesses with significant growth prospects. This growth capital will help us expand Tourmaline’s geographic footprint, hire new talent and invest in new technologies to drive revenue and meet an increased demand for our services, all while remaining 100% conflict-free.
What surprised you in 2020?
While we anticipated that our business would continue to grow and that the 2020 market disruption would stimulate interest in our unique niche, what surprised us most was the demand for supplemental trading solutions from investors of all shapes and sizes. This includes traditional fund managers, family offices, superannuation and sovereign wealth funds, RIAs, VC and private equity firms with public positions.
Many had struggled to find liquidity during the height of volatility and turned to Tourmaline to help expand their reach and address bandwidth issues. This included helping with difficult to trade names, accessing “away” brokers, trading overseas markets, even helping to build or exit large positions. We expect that this demand will continue and become a standard industry practice as more firms understand the value of leaning on experts. Certainly, the total addressable market will grow meaningfully as larger managers embrace supplemental trading. We think that we are still just scratching the surface here, and that much of this growth will be driven by educating the marketplace.
What trends are getting underway that people may not know about but will be important?
As our space continues to gain momentum, buy-side firms will place an increased focus on the structure of the outsourced trading firm. We believe an independent structure is paramount – for Tourmaline, our independence means we offer our clients a true, unconflicted buy-side trading experience. We face the sell side as a large buy-side client, which is crucial to providing a robust path to liquidity for our clients.
As interest in our space has grown, we have seen a number of new players enter the market. This includes agency brokers, prime brokers, custodians and others – all providing solutions very different from Tourmaline’s pure-play, buy-side trading experience. So, peeling back the onion and looking at the product you are engaging is increasingly more important. Most managers who evaluate outsourced trading solutions want a differentiated offering – not just another sell-side broker.
Importantly, as supplemental trading, our fastest growing business, becomes more common – among larger managers in particular – the requirement for sound corporate governance will drive demand for independent pure-play offerings. Larger managers and asset owners will demand transparency, evaluate resources and seek to avoid firms with inherent conflicts of interest.
We like how we are positioned and look forward to 2021.