Firm Profile:
U.S.-based hedge funds running a sector-specific active equity strategy, trading with meaningful frequency and size across both liquid and illiquid names, with a structural emphasis on discretion and independence from its execution partners.
Introduction
Active hedge funds occupy a different position in the market than most institutional traders. Strategies built around concentrated conviction, sector specialization or high-frequency repositioning depend on more than access to liquidity – they depend on the ability to move through the market without revealing intent. For these funds, execution is inseparable from strategy: how an order is worked, who sees it, and what gets inferred from it can materially affect the outcome of a position before it is even fully built.
That creates a need for discretion that can be complicated by the structure of a fund’s execution relationships. For a fund trading significant volume in a concentrated set of names—particularly within a specific sector—even modest activity can signal its intentions to the market. At the same time, many funds rely on execution partners that also provide prime brokerage services, financing or custody, relationships that can introduce real or perceived conflicts of interest into routing or execution decisions. For funds that place a premium on independence and anonymity, the choice of execution partner therefore becomes an important part of protecting the investment process.
The Challenge
In this case, an active hedge fund trading frequently in a concentrated set of equities had reached a point where its existing execution relationships were no longer serving its core priorities. The fund’s strategy required frequent trading in and around a concentrated set of names, some of which were thinly traded, making the fund particularly vulnerable to information leakage. Even modest signs of accumulation or distribution in these names risked moving the market against the fund before a position could be fully established or unwound.
Compounding this exposure, several of the fund’s existing execution relationships were tied to prime brokerage arrangements. While convenient, this structure introduced questions about whether routing decisions were always made purely in the fund’s interest, or whether they were shaped by the broader economics of the prime relationship. For a fund that valued independence as a core operating principle, this was an increasingly uncomfortable trade-off.
The fund also faced a more tactical challenge: sourcing consistent liquidity in illiquid names without expanding its own trading footprint or giving up the research relationships it had built over time. Existing research providers were valued partners, and the fund was unwilling to sacrifice that credit simply to gain access to better execution.
The Solution: Outsourced Trading with CAPIS
The fund began its relationship with CAPIS cautiously, routing a smaller, supplemental portion of its flow – largely the more straightforward, lower-touch orders – as an initial test of the desk’s capabilities and discretion.
Central to the fund’s evolution was CAPIS’s agency-only model. Because CAPIS does not run a prime brokerage business and does not hold a proprietary book, every order handled by the desk is executed with a single mandate: best execution. This structural independence was, for the fund, the foundation the entire relationship was built on.
Discretion followed closely behind. CAPIS’s approach to anonymity allowed the fund’s identity to remain out of the market entirely during execution, with attribution disclosed only if and when the fund chose to reveal it. This functioned less like a service feature and more like camouflage – the fund could accumulate or reduce exposure without the market inferring who was behind the activity or why.
As trust in the relationship grew, CAPIS extended the fund’s reach into liquidity for its more thinly traded, harder-to-execute names – liquidity the fund had previously struggled to source on its own without moving the market. At no point did this require the fund to alter its existing research relationships; CAPIS’s use of independent research complemented, rather than competed, with the providers the fund already valued and credited.
Over time, the relationship expanded naturally. What began as a supplemental arrangement grew as the fund became more comfortable routing a larger share of its flow through the desk, confident that neither its identity nor its research relationships were at risk. After approximately __ months, CAPIS introduced the fund to a Commission Sharing Agreement structure it had not previously utilized – giving the fund an additional level to manage the economics of research and execution costs going forward.
The Result
Over the course of the relationship, the fund’s share of flow executed through CAPIS grew from a limited initial allocation to a more substantial share, driven largely by the fund’s growing confidence in the desk’s execution.
The introduction of CSA capabilities added a further lever for managing research and execution costs, and the fund’s reliance on prime brokerage-tied execution relationships declined meaningfully over the course of the engagement — removing a longstanding source of internal friction. What began as a limited, supplemental engagement evolved into a core execution relationship.
Conclusion
By engaging with an agency-only partner with no competing interests, funds can protect the integrity of their strategy. In doing so, execution becomes not a point of exposure, but a source of durable competitive advantage.
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