Wednesday, 29 June 2016
Last updated 5 hours ago
Jun 20 2008 | 2:00am ET
Bear Stearns’ recent meltdown has made for a few sleepless nights for some hedge fund managers who wonder if their assets and collateral are safe with their own prime brokers.
But one prime broker’s misfortune is another’s opportunity, and Pershing Prime Services is ready to cash in on the turmoil in the marketplace. The firm has teamed up with the Bank of New York Mellon Corp. to provide managers with prime, custodial, accounting and administration services, all under one roof.
FINalternatives: What is your relationship with BONY-Mellon and what does it mean for your hedge fund clients?
Jeremy Todd, director: Pershing offers a variety of services and solutions to hedge funds including securities lending, business consulting, cash management, operational support, trading services, and flexible technology and reporting capabilities. Through our tri-party account approach with our parent company, The Bank of New York Mellon Corp., we are also able to offer hedge funds custody, administration, and accounting services, as well as an integrated 130/30 solution. Our integrated tri-party platform is advantageous for hedge funds looking to diversify their counterparty risks where they hold their longs at The Bank of New York Mellon and their shorts at Pershing, which is unique to us in the marketplace.
FINalternatives: How big are the hedge funds serviced by Pershing, and what are their strategies?
Todd: We are targeting hedge funds across the full spectrum of size and strategies. We serve customers who are multi-billion dollar firms and also serve customers who are under $100 million, including start-ups. Our customers’ total assets are close to $150 billion under management, and we have approximately 35 customers. About one-third of our customers are 130/30 managers.
FINalternatives: What attracts Pershing to the 130/30 space?
Jack Huber, director: When you get into the 130/30 space, we have a very unique offering as we can offer the services of a custodian bank on the long side and prime broker services on the short side. Although this may be a strategy that some people say is still unproven, 130/30 is a growing strategy among traditional long-only hedge fund managers. If you are going to allow mutual funds to use shorting somewhere in their strategy, then I think 130/30s are here to stay.
FINalternatives: The demise of Bear Stearns has brought the issue of counterparty risk to the forefront. What are you doing to quell clients’ concerns?
Todd: Counterparty risk is an important issue for hedge funds and we believe Pershing and The Bank of New York Mellon’s stable balance sheet provides hedge funds with a strong level of comfort. A lot of hedge funds are moving their fully-paid for assets into banking institutions, such as The Bank of New York Mellon, which is the only custodial bank that has an affiliated company with a prime brokerage business. There are also some operational nuances that can be challenging to support when it comes to tri-party relationships and moving collateral out of one account into another. We are able to handle these collateral movements in a more operationally efficient manner.
Craig Messinger, managing director: Certain primes are going to enjoy a pretty good lift because of what is going on in the market. We are seeing more inquiries and accounts approaching us. We’ve enjoyed good growth and have a strong pipeline of customers in terms of size and strategies. You will see a doubling or tripling of our prime services business within the next 12 months.
By Hung Tran
This article appeared in the June 2008 edition of
FINalternatives Prime Brokerage.