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Prime Brokerage New York / Evolution

Prime Brokerage New York CityThe prime brokerage industry is constantly evolving adapting to new client demands, opportunities and regulatory environments. I was in New York yesterday discussing some of these ongoing changes with a few prime brokerage professionals and they mentioned that several times a year there are events which slightly re-shape their industry.

If you haven't read it already there was an interesting article put out by ICFA a few days ago about the changing landscape of the hedge fund prime brokerage business model. Special thanks to Fintag for finding this article.

The main point of change that this article pointed to was the widespread interest in hedge funds by traditional investment managers. This is leading prime brokerage clients to service clients who also run 130/30 and long only portfolios as well.

"According to a recent Vodia Group survey traditional asset managers have 3 per cent of their asset base - equivalent to $1.95trn - in leveraged investments, with 86 per cent of major asset managers expecting to run 130/30s by mid-2009. The firm predicts that leveraged assets will increase from $2.65trn today to $4.48trn in 2012, driving greater demand for prime brokerage services."

"But traditional asset management clients are forcing prime brokers to adapt their business model, placing greater emphasis on custody, reporting and
risk management and de-emphasising capital introduction and leverage. These factors will push margins lower and increase operational requirements in the prime brokerage business, Vodia said."

While I can see why the largest of institutional money managers are not going to be drawn by the hopes of capital introduction I still believe that those prime brokers who do offer capital introduction services will have a competitive advantage while competing for the business of hedge fund managers here in the US. Every year the field becomes more competitive, and most hedge funds need help marketing and raising capital.

- Richard

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