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New Prime Brokerage Model Emerging

Richard C. Wilson — Fri, 19 Dec 2008 16:12:09 +0000

h1 style="text-align: center;"bNew Prime Brokerage Model/b/h1h2 style="text-align: center;"bspan class="Apple-style-span" style="color: rgb(102, 0, 0);"New Prime Brokerage Model Emerging/span/b/h2br /a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://4.bp.blogspot.com/_wM_OZdOMR_Y/SUvGhHYSIaI/AAAAAAAACrA/bkbv9SI9Bmo/s1600-h/Prime-Brokerage-Trends.jpg"img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 134px; height: 200px;" src="http://4.bp.blogspot.com/_wM_OZdOMR_Y/SUvGhHYSIaI/AAAAAAAACrA/bkbv9SI9Bmo/s200/Prime-Brokerage-Trends.jpg" alt="New Prime Brokerage Model Emerging" title="New Prime Brokerage Model Emerging" id="BLOGGER_PHOTO_ID_5281533260240920994" border="0" //aThe credit crisis and the subject of counter party risk is proving to be the final nail in the coffin for the hedge fund industry's single prime brokerage model. Funds of all sizes now demand multiple custodial relationships.br /br /The problem the high-cost-structure leading a href="http://primebrokerageguide.com"prime brokerage/a firms now face is that without the assurance of the captive single prime model the economics of servicing smaller funds no longer make sense. This reality combined with the primes' decreased risk tolerance means that we are seeing a mass exodus away from the top-tier primes. Anecdotal evidence suggests that these primes are now in the process of weeding out clients that manage less than $100 million or that do not generate annual revenues of at least $250,000. We are also witnessing primes becoming more selective about what type of funds they are willing to service. Funds whose strategies involve less liquid securities and/or high leverage are now finding the bar set much higher.br /br /This retrenchment by the leading span style="font-size: 100%;"a title="" style="font-family: arial;" href="http://richard-wilson.blogspot.com/2007/10/hedge-fund-prime-broker.html" description="Hedge fund prime broker, prime broker services for hedge funds, hedge funds prime broker, hedge fund prime brokers, prime brokerage hedge funds, fund prime brokerage, hedge fund prime broker services, prime broker, prime brokers" alt="prime brokers, prime brokerage"prime brokers/a/span raises the obvious questions - Who will fill the void and offer prime services to the lower end of the market? Who will provide the financing, stock loan, technology infrastructure etc. necessary for smaller funds to generate alpha?br /br /Before we answer this question let’s take a moment to think about why this smaller hedge fund segment is so key to the future success of the industry. It is no secret that size kills alpha. Many successful funds follow a familiar arc. They gain attention (and funds) by earning outsized returns, as they grow in size their primary strategy reaches capacity and they experience a leveling off of returns. If they are not lucky enough to find another successful strategy, returns will continue to suffer, capital will begin to flow out and ultimately investment talent will go in search of new opportunities. This regeneration process is vital to the health of the industry and for many investors, it is the promise of catching a smaller fund during this growth phase that motivates them to invest.br /br /Historically the group charged with picking up the crumbs left by the leading primes was a group known as the mini-primes. This term is rapidly becoming obsolete as the mini-primes now find themselves expanding their offerings to attract the funds that have been displaced. Two important differences remain: 1 - The mini’s still use the clearing services of their larger prime broker brethren, and 2 - more importantly, their cost-structures evolved in a way that allows them to offer prime services profitably at this lower end of the market. Interestingly we are also seeing a number of new entrants to this expanded segment of the prime brokerage industry. These are for the most part more traditional brokers who see an opportunity to increase the stickiness of their execution services, as well to develop new revenue streams, by building out a prime brokerage offering.br /br /Only time will tell who will be successful in this greatly altered landscape of prime brokerage. The winners will be the firms that understand that the new economics of prime brokerage demand a new industry infrastructure. This prime infrastructure will rely heavily on cost-effective technologies that can offer aggregated multi-prime reporting, as well as real-time views of critical data such as Pamp;L and Risk, right to the desktop of the hedge fund. This restructuring of the prime model will ensure the health of the industry by continuing to offer a relatively low barrier of entry to the all important small hedge fund segment.br /br /Article contributed by Peter Curley of a href="http://www.nirvanasolutions.com/web/"Nirvana Solutions/abr /br /h4Related to New Prime Brokerage Model Emergingbr //h4ullia alt="Hedge Fund Tracker Tool" href="http://richard-wilson.blogspot.com/2008/08/hedge-fund-tracker-tool.html" title="Track over 1,000 Leading Hedge Funds"Hedge Fund Tracker Tool/a/lilia description="hedge fund marketing" alt="hedge fund marketing" href="http://richard-wilson.blogspot.com/2008/03/hedge-fund-marketing.html" title="Sharpen Your Hedge Fund Marketing Skills"Fund Marketing and Sales Advice /a/lilia href="http://richard-wilson.blogspot.com/2007/12/100-hedge-funds-to-watch.html"Top Hedge Fund Managers/a/lilia description="A collection of tools for hedge fund startups" alt="Hedge Fund Startup Tools" href="http://richard-wilson.blogspot.com/2008/09/hedge-fund-startup-tools-1-page-guide.html" title="Hedge Fund Startup Tools"Hedge Fund Startup Tools/a/li/ulTags: prime brokerage trends, prime brokerage news, prime brokerage, prime broker, prime brokers, California prime brokerage, new york prime brokerage, Dallas prime broker servicesdiv class="feedflare" a href="http://feedproxy.google.com/~f/richard-wilson-blog?a=mTrhhK3W"img src="http://feedproxy.google.com/~f/richard-wilson-blog?i=mTrhhK3W" border="0"/img/a a href="http://feedproxy.google.com/~f/richard-wilson-blog?a=MtgjPHXb"img src="http://feedproxy.google.com/~f/richard-wilson-blog?d=50" border="0"/img/a a href="http://feedproxy.google.com/~f/richard-wilson-blog?a=EExvxQJN"img src="http://feedproxy.google.com/~f/richard-wilson-blog?i=EExvxQJN" border="0"/img/a /divimg src="http://feedproxy.google.com/~r/richard-wilson-blog/~4/epLczgd2n8k" height="1" width="1"/

Top 3 Prime Brokerage Trends

Richard C. Wilson — Mon, 08 Dec 2008 00:15:06 +0000

h1 style="text-align: center;"bTop 3 Trendsbr //b/h1h2 style="text-align: center;"bTop 3 Prime Brokerage Trends/b/h2br /a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.mauronewmedia.com/images/ued/main-business-objectives.jpg"img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 228px; height: 162px;" src="http://www.mauronewmedia.com/images/ued/main-business-objectives.jpg" alt="" border="0" //aOver the last two years the mainstream media’s and general public’s interest in prime brokerage has rapidly grown. This is due to a number of factors including the struggle and failure many investment banks offering prime brokerage services including a alt="Lehman Prime Broker" href="http://primebrokerageguide.com/2008/05/lehman-prime-broker.html" title="Lehman Prime Broker"Lehman Brothers/a, mergers within the industry and widespread failures and redemption notices of hedge funds themselves.br /br /The top three trends affecting the prime brokerage industry right now are multi-prime brokerage relationships, limiting capital introduction services, and prime brokers acting as business partners to hedge fund managers.br /br /Multi-prime brokerage relationships used to be used by $5B+ a href="http://richard-wilson.blogspot.com/2008/03/hedge-funds.html"hedge funds/a whose large institutional clients demanded the practice as a risk management technique. In the past this was almost though of as unnecessary as no large investment banks offering prime services had collapsed. It was seen in the same light as a major economic superpower defaulting on their own investment notes. This year, in 2008 everything has changed, Lehman failed and many investment banks have struggled or sold off their prime brokerage services to other firms. This has lead to widespread migrations between prime brokerage service providers and a trend towards managing multi-a href="http://primebrokerageguide.com/"prime brokerage/a relationships for funds with over $500M in assets or even lower. Some firms as small as $5M are choosing to work with more than one prime brokerage firm from the very start as a few firms have reported shutting down due to assets being locked up within Lehman Brothers when they collapsed earlier this year.br /br /Another shift in the industry has been felt within the area of capital introduction services. Anyone offering these services lately has faced increased challenges of investors sitting on cash, poor market and overall industry performance along with increasingly frequent reports of hedge fund fraud. Prime brokerage firms are no effected by this, especially since they often take on and attempt to service more clients than most independent a href="http://richard-wilson.blogspot.com/"hedge fund/a marketers which are often referred to as third party marketers would. This had led to more selective capital introduction service offerings by prime brokerage firms and more frequent partnerships between prime brokerage firms and third party marketers in the industry.br /br /The third major trend affecting the prime brokerage business is that more firms in the space are positioning themselves as business partners. This is due to the commoditized nature of the industry and high level of competition for new business. Prime brokerage firms are now publishing white papers, offering business plan and marketing plan startup tools and holding workshops and networking events to help hedge fund managers connect with additional business partners and a alt="Hedge Fund Blogger.com: Hedge Fund Investors" href="http://richard-wilson.blogspot.com/2008/01/hedge-fund-investors.html" title="Hedge Fund Investors"investors/a.br /h4Related to Top 3 Prime Brokerage Trends:/h4ullia title="Hedge Fund Careers" href="http://richard-wilson.blogspot.com/2007/10/hedge-fund-career.html" description="Hedge Fund Careers" alt="Hedge Fund Careers"span style="font-size:100%;"/span/aa title="" style="font-family: arial;" href="http://richard-wilson.blogspot.com/2007/10/hedge-fund-prime-broker.html" description="Hedge fund prime broker, prime broker services for hedge funds, hedge funds prime broker, hedge fund prime brokers, prime brokerage hedge funds, fund prime brokerage, hedge fund prime broker services, prime broker, prime brokers" alt="prime brokers, prime brokerage"Hedge Fund Prime Brokers/a/lilia title="hedge fund associations" href="http://richard-wilson.blogspot.com/2008/03/hedge-fund-associations.html" description="hedge fund associations" alt="hedge fund associations"span style="font-size:100%;"/span/aa title="Prime Brokerage Services" href="http://richard-wilson.blogspot.com/2008/04/prime-brokerage-services.html" description="Prime Brokerage Services" alt="Prime Brokerage Services"span style="font-size:100%;"/span/aa title="Prime Brokerage Services" href="http://richard-wilson.blogspot.com/2008/04/prime-brokerage-services.html" description="Prime Brokerage Services" alt="Prime Brokerage Services"Prime Brokerage Services/aa title="hedge fund associations" href="http://richard-wilson.blogspot.com/2008/03/hedge-fund-associations.html" description="hedge fund associations" alt="hedge fund associations"/a /lilia description="Prime Brokerage, Prime Brokerage Services, Prime Brokerage Survey, FX prime brokerage, Currency Prime Brokerage, Synthetic Prime Brokerage" alt="Prime Brokerage" href="http://richard-wilson.blogspot.com/2008/06/prime-brokerage.html" title="Prime Brokerage"Prime Brokerage/a/lilia title="Hedge Fund Work" href="http://richard-wilson.blogspot.com/2008/06/hedge-fund-work.html" description="Hedge Fund Work, Hedge Fund Employers, Hedge Fund Employers, Work at a Hedge Fund, Hedge Funds Work" alt="Hedge Fund Work, Work at a hedge fund"Hedge Fund Work /a/lilia title="hedge fund recruiters" href="http://richard-wilson.blogspot.com/2008/03/hedge-fund-recruiters-recruitment.html" description="hedge fund recruiters" alt="hedge fund recruiters"Hedge Fund Recruiters /a/li/ulTags: Prime Brokerage News, Prime Brokerage Trends, Prime Broker Trends, Prime Broker News, Prime Broker Changes, Changes to Prime Brokerage Firms, Prime Brokerage, prime brokerdiv class="feedflare" a href="http://feeds.feedburner.com/~f/richard-wilson-blog?a=6jNPo"img src="http://feeds.feedburner.com/~f/richard-wilson-blog?i=6jNPo" border="0"/img/a a href="http://feeds.feedburner.com/~f/richard-wilson-blog?a=mV6zO"img src="http://feeds.feedburner.com/~f/richard-wilson-blog?i=mV6zO" border="0"/img/a a href="http://feeds.feedburner.com/~f/richard-wilson-blog?a=vUodo"img src="http://feeds.feedburner.com/~f/richard-wilson-blog?i=vUodo" border="0"/img/a /divimg src="http://feeds.feedburner.com/~r/richard-wilson-blog/~4/477763451" height="1" width="1"/

Asian Hedge Fund Leverage & Prime Brokerage

Richard C. Wilson — Tue, 21 Oct 2008 04:25:18 +0000

Asian Hedge Funds

Asian Fund Leverage & Prime Brokerage

(http://hedgefundblogger.com) It seems that many Asian-based hedge funds have dodged a few bullets by not being tied as closely to Bear or Lehman... that combined with traditionally using less leverage than some other funds might have helped a few Asian hedge funds weather this storm. By a few I mean very few - recent data suggests that Asian funds are down more than their peers over the last few months. Below is an excerpt on how some Asian funds have dodged the prime brokerage woes of US and UK based groups:
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ASIAN hedge funds are relatively shielded from the distress that their counterparts in developed markets are weathering, thanks to their use of 'far less' leverage, said UBS head of prime services (Asia Pacific) David Gray.

'Our clients have been extremely sensible in the way they use gearing . . . and far more constrained in their use of illiquids.'

Still, Asian hedge funds could see redemptions of between 10 and 40 per cent. A clearer picture of the redemption rate is expected to emerge in early November.

Funds' cash levels vary between 20 per cent and more than 50 per cent, 'far higher than we have seen previously'. A year ago, cash levels were between 5 per cent and 10 per cent.

UBS yesterday hosted its third pan-Asian hedge fund conference. The bank's prime brokerage is the third largest in Asia after Goldman Sachs and Morgan Stanley, with a market share estimated at about 15-17 per cent. Prime brokerage continues to generate strong results for the group.

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Singapore Prime Brokerage | Hedge Fund Prime Broker Trends in Singapore

Richard C. Wilson — Tue, 07 Oct 2008 02:13:15 +0000

Prime Brokerage Singapore

Article on Prime Brokerage in Singapore

Here is a recent post from our associated PrimeBrokerageGuide.com site:

When visitors arrive at Singapore's Changi Airport, they get both an immigration card and an application form for opening a hedge fund.

This was one of the jokes making the rounds in 2007. The fact is that hedge funds in Singapore were growing fast since 2006. According to an article dated Feb 2007 from eFinancialCareers, "prime brokers are in hiring mode" - Barclays Capital, Citigroup, Lehman Brothers, Morgan Stanley and UBS all hired for their Singapore prime brokerage operations in 2006.

By Nov 2007, Singapore serves as prime broking regional headquarters for Credit Suisse Group, Citigroup Inc and Barclays Capital plc, according to HedgeFund Intelligence. Citigroup and Morgan Stanley also opened Singapore prime brokerage offices in 2007, to service the fast-growing number of hedge funds in that market. Morgan Stanley, the top Singaporean prime broker by assets under management according to Eurekahedge, had previously been servicing its Singapore clients from Hong Kong.

As the growth of hedge funds slowed down due to the credit crisis, an article (download pdf) dated Feb 2008 pointed out that "their (referring to the prime brokers in Singapore) enthusiasm for growth is now waning". As reported on Oct 4^th, 2008, Morgan Stanley is looking at scaling back its prime-brokerage operation (detail). However others believe that "Asian hedge funds may be cold, but the Asian prime brokerage industry remains sizzling"(FINalternatives), indicated by Citi's move to add eight professionals to four Asia offices in Aug 2008, including transferring Danielle Vint to handle the prime brokerage's fixed-income desk in Singapore.

It is said that Citi has fired "the latest salvo in the prime brokerage talent wars in Asia". In Feb 2008, Merrill Lynch hired Aussie hedge fund CEO Jeffrey Levy for Asia prime brokerage, to join the firm's Singapore office. Levy's hire fills the hole left by Harvey Twomey, who left Merrill Lynch to join Deutsche Bank as head of global prime finance sales in Asia. Another source reports that in Sep 2008, Deutsche Bank has moved Chris Pagan (LinkedIn) from Hong Kong to Singapore in order to head prime brokerage for Southeast Asia.

by Yifei Huang

Interested in learning more about the hedge fund industry in Singapore? Please see our geographical guide on this region: Singapore Hedge Fund Guide.

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Prime Brokerage Market | 1 Page Guide

Richard C. Wilson — Mon, 29 Sep 2008 02:51:41 +0000

Prime Brokerage Market Share

A Brief Overview of Industry Market Share

A good read titled "Battle of the Bulges" pointed out that competition for gaining prime brokerage market share is growing fiercer with more than $11 billion in expected hedge fund revenues in 2008, a 15% increase over 2006 (reported by TABB Group). The fight for market share is even more intense among the industry's top players.

For years the prime brokerage industry has been dominated by three firms—Goldman Sachs, Morgan Stanley and Bear, which collectively owned about two-thirds of the market. As of year-end 2006, the Lipper HedgeWorld prime brokerage league table ranked Morgan Stanley first (with 23% of the market and $153 billion in assets), followed by Bear (21%, $136 billion), Goldman (18%, $119 billion), UBS (7%, $47 billion) and Credit Suisse (4%, $25 billion), in terms of market share based on assets.

As Bear collapsed in March 2008, and Morgan Stanley and Goldman Sachs struggle to maintain their dominance in the industry, other major financial services firms are stepping up their prime brokerage efforts, including JPMorgan Chase, Deutsche Bank, UBS, Credit Suisse and BNP Paribas. JPMorgan Chased was only ranked eighth in the Lipper survey with just a 2.3% market share, now it is given a quick entry into prime brokerage as long as Bear's hedge fund clients are successfully locked down. BNP Paribas bought Bank of America's equity prime brokerage division that was ranked the sixth-largest in the country by assets at the end of 2006 by Lipper HedgeWorld, thus was instantly made one of the largest prime brokers in the U.S.

The recent turbulence in the prime brokerage industry also accelerated the trend of hedge funds moving away from replying on just one prime broker. Traditionally hedges funds are unwilling to switch prime brokers or increase the number of their prime brokers (TABB report). As Michael Guarasci, partner at hedge fund Indus Capital Partners said, "We have long-standing relationship with our prime brokers, so if a new company wants to come in and do business with us, it may not get anywhere because we're pretty happy with our service. It's not easy to switch prime brokers." (full article). Now more and more hedge funds are adding prime brokers to limit counterparty risk since the fall of Bear (ref). This created considerable opportunity for new players to enter or existing players to take a bigger piece of the market share, as pointed out in an article by Merrill Lynch: "The multi-prime broker environment overcoming the challenges and reaping the benefits" (download the pdf).

Interested in learning more about prime brokerage. Please checkout the new website - http://PrimeBrokerageGuide.com.

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That Giant Sucking Sound you Hear

The Energy Report — Fri, 12 Sep 2008 00:13:19 +0000

by Energy and Capital “Most hedge funds were deeply invested in energy and commodities in the first half of the year, because that’s the only part of the market that was making any money while oil made an historic run. Bloomberg estimates that assets linked to commodity indexes exploded 200-fold from $13 billion at the end [...]

Prime Brokerage Hedge Fund Administration

Richard C. Wilson — Tue, 02 Sep 2008 12:57:17 +0000

Prime Brokerage + Administration

Prime Brokerage & Hedge Fund Administration

More prime brokerage firms are adding on administration services to help attract and retain clients. I wasn't sure how widespread of a trend this was but saw this mentioned within an article yesterday as noted below. I would be interested in discussing this further with hedge fund managers reading this article - if you have some insight - Richard@HedgeFundGroup.org.
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In recent years, the custodian banks that have acquired hedge fund administrators have sought to adjust client lists in favor of larger and more profitable hedge fund and fund of funds groups interested in a broader array of services. At the same time, prime brokers have recognized that providing administration services can help attract and retain clients and counter the shift among hedge fund managers towards multiple prime brokerage.

"It would be surprising if the hedge fund administration industry continues to support such a large number of providers, and there is now evidence that a renewed round of consolidation is in the offing," says Dominic Hobson. "However, the appetite to sell may be offset as well as encouraged by the depressed prices available. In any event, the buyers are likely to be different from the banks which dominated the acquisition process in the early years of this century." Read more...

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