Prime Broker Market | Opportunities & Challenges

Prime Broker Market

Prime Broker Market Share Changes

Below is a short article on how the market share between prime brokers is changing. Some banks are gaining over $1B a quarter in new assets while others are losing market share to those banks which appear to be less risky to hedge fund managers who are trying to lower counter-party risk. Here is the article excerpt:

The collapse of Lehman Brothers last September was the flashpoint of a year that saw the prime brokerage world - along with that of its hedge fund clients - transformed by the ongoing credit crisis and grisly economic backdrop. But for those funds and brokers that come through the turbulence intact, the new landscape offers a broad range of opportunities for the coming years, according to Nick Roe, the London-based head of prime finance at Citi.

While the hedge fund assets that were locked up in London after Lehman Brothers International (Europe) went into administration garnered headlines for a while, Roe argues that just as important was the spotlight turned on rehypothecation - the use by prime brokers of hedge fund assets as collateral for the borrowing they need to provide funding to those clients.

'I believe the regulations regarding rehypothecation will change, with prime brokers forced into much more transparency,' he says. 'But it won't go away, because most hedge funds couldn't cope with the changed economic conditions if prime brokers weren't able to make use of some of their assets to deliver the required levels of funding.' source

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