Banks Beating Bushes For Hedge Fund Biz

Date: Wednesday, August 9, 2006
Author: Institutional Investor.com

Banks are stepping up the “land war” to grab a share of the hedge fund prime broking market, the Financial Times reports. At stake is up to $25 billion a year in fees from HFs, which are enjoying all the attention. While big hedge funds in the past used to be content with one prime broker, now even smaller firms “are moving aggressively towards having at least two or three or more prime brokers,” according to recent Paladyne Systems research, making banks eager to lend hedge funds more in order to get their business. But it’s risky business for the banks, which the FT says put their balance sheets on the line, should they be heavily saddled with HF debt when the markets turn down. In an effort to win a slice of a market dominated by Morgan Stanley, Goldman Sachs and Bear Stearns, relative upstarts, which include Citigroup, Lehman Brothers and Merrill Lynch, are expanding their practices and pumping up their staff to offer more than just prime broking. “It is a financing business with a complete service wrapper,” Richard Portogallo of Morgan Stanley told the FT.