Battle of the Bulges

Jun 19 2008 | 2:00am ET

With more than $11 billion in expected hedge fund revenues in 2008, competition among prime brokerage firms is fierce. Nowhere is this more visible than among the industry’s top players. As bulge-bracket firms such as Citigroup and JPMorgan Chase make major pushes to build up their prime brokerage units and gain marketshare, their more established counterparts—Deutsche Bank, Morgan Stanley, Merrill Lynch and Goldman Sachs—are fighting to hold tight to their dominance of the industry.

FINalternatives Prime Brokerage 2008FINalternatives Prime Brokerage 2008Earlier this month, French banking giant BNP Paribas agreed to buy Bank of America’s embattled prime brokerage division. The unit, which had been beset with high-level departures, still garnered a great deal of interest due to its 500-strong client list. The acquisition instantly makde BNP one of the largest prime brokers in the U.S.—BofA was the sixth-largest prime broker in the country by assets at the end of 2006, according to Lipper HedgeWorld. And many industry observers considered Bear Stearns’ massive prime brokerage—which boasted a 20.6% market share in the last Lipper league tables, good enough for second place—its only asset of value and a major attraction to JPMorgan, which ranked eighth in the Lipper survey with just a 2.3% market share.

Morgan Stanley was the world’s largest prime broker last year, working for 455 funds with a total of $152.8 billion in assets under management, a 23.2% market share. But while it claimed the top spot for size, it wasn’t the most well loved: According to this year’s Global Custodian survey—in which hedge funds ranked prime brokers based on their service—Deutsche Bank was ranked first, with Merrill Lynch taking second, and, Morgan Stanley falling to third.

Locally, however, Morgan Stanley maintains a stronger hold on its clients. A recent TABB Group survey of 61 U.S. hedge funds found 59% reporting a strong relationship with Morgan Stanley, while just 15% said the same of Deutsche Bank.

“The two most frequently cited prime brokers—Morgan Stanley and Goldman Sachs—are building on their dominance,” the TABB report says. “When clients talk about their primes, they talk about solid reputation, superior technology and overall breadth of support that make the leaders an easy choice when selecting a prime. Other primes at this point are playing catch-up to reach the upper-echelon status that both Morgan Stanley and Goldman Sachs have been able to attain over the last few years.”

Morgan was also frequently cited as boasting top-notch capital introduction capabilities in the 2008 FINalternatives Prime Brokerage Survey. Other strong fundraisers include Calyon, Lehman Brothers and Merlin Securities.

The increasing competition among prime brokers has extended to personnel, with the big firms poaching talent from one another. Deutsche Bank, Bear Stearns, Morgan Stanley and BNP Paribas have all in the last year announced major hires from their biggest rivals.

by Britt Erica Tunick

This article appeared in the June 2008 edition of
FINalternatives Prime Brokerage.

In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...


Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...


Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…


Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.