Hedge Fund Prime Brokers Banks
Big Banks Look to Squeeze Less Profitable Hedge Fund Clients
Banks are looking to cut costs and, unusually, that has meant cutting ties with some hedge fund clients. Reuters recently reported that prime brokers at major banks are under pressure to refocus on the biggest, most profitable hedge fund clients and to extract more money from or even cut ties with less profitable hedge funds.
Industry insiders say prime brokers - which provide services such as stock lending and financing for hedge funds - are sifting through their client lists, in some cases demanding higher fees on trading or a greater share of a fund's business, and sometimes telling funds to look elsewhere.
The moves come as banks, faced with a tough economic environment, higher regulatory costs and looming Basel III capital standards that are set to reduce returns on equity, look to cut costs across the board and focus on more profitable activities.
Small funds, most of which have found it a struggle to attract client cash since the credit crisis, or funds with little leverage or trading activity look less attractive to many banks, although in the secretive $2.1 trillion industry few executives are keen to reveal who has lost out.
Brokers are in many cases instead focusing on trying to capture even a sliver of business from the biggest and most active hedge fund traders, for instance Brevan Howard or Moore Capital, who can deliver tens of millions of dollars in commission to their main brokers. source
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