NEIL WILSON, MANAGING EDITOR, HEDGEFUND INTELLIGENCE
Goldman Sachs is the biggest prime broker in the global hedge funds business, both by mandates and by client assets, according to the first-ever global survey of the prime broking market conducted by HedgeFund Intelligence. The survey, covering an unprecedented amount of more than $1.6 trillion of assets under management – including over $1 trillion managed by hedge funds in the Americas – provides the biggest and most detailed analysis of the global prime brokerage market ever published.
By mandates, it shows that Morgan Stanley is the second biggest prime broker globally. But by assets, it shows Credit Suisse in second place – boosted by its strength in international markets, and particularly in Europe where it is now by some distance the biggest player. And in third place by assets is JP Morgan – which, like Credit Suisse, got a big boost to its business following the financial crisis of 2008, but in JP Morgan’s case more in the US market.
Following the top four, the next two biggest players globally are two other major European banks – UBS and Deutsche Bank – which are neck and neck in fifth and sixth places.
And rounding out the top 10 biggest players in the business are four other firms that are very closely matched – Citi, Barclays Capital, Bank of America Merrill Lynch and Newedge, with the latter’s strong position boosted overall by its high market share in the managed futures sector (principal clearing brokers for which are also counted for the purposes of this survey).
Just outside the top 10 are BNP Paribas and SEB, the Swedish bank, which has a dominant market share in the Scandinavian region.
The regional tables show how Goldman’s overall lead is based largely on its leadership of the market in the Americas, where it has been challenged very strongly since 2008 by JP Morgan – after the latter took over the old Bear Stearns PB business, which had been a big player in the US. On the latest and most detailed ever Absolute Return survey, Goldman edged back ahead of JP Morgan, followed by Morgan Stanley with Credit Suisse pretty close this time in fourth place.
In Europe, until 2008 the market had been heavily dominated by two firms – Morgan Stanley, which was for many years the clear market leader, followed by Goldman Sachs. But, in Europe, it was Credit Suisse that was the biggest beneficiary of the financial crisis in 2008, when many hedge funds suddenly moved to appoint alternative PBs. Our latest EuroHedge survey (April 2012) also showed UBS now moving ahead of Morgan Stanley into third place overall in Europe, with Deutsche Bank as well as JP Morgan pretty close behind. Newedge too has built an increasingly big market share in Europe, based mainly on its popularity with many CTAs who have grown a lot in recent years and which use the firm as a principal clearing broker.
In Asia, the top five firms are very closely matched – with Goldman and Morgan Stanley only slightly ahead of the rest on the basis of business with Asian hedge funds managed from outside the region (managed mainly from the US or the UK). Within the region itself, Deutsche Bank, for instance, came out as the biggest prime broker for funds managed in Hong Kong (the biggest market within the region) as well as in Australia in our latest survey (AsiaHedge, May 2012), while Credit Suisse was top for funds managed in Singapore.
This survey’s findings are based on the regional surveys conducted by the HedgeFund Intelligence data team, derived from information reported directly from hedge funds across the globe to the database, supplemented by research on new funds not yet reporting to the database, plus SEC filings. The numbers for mandates are based on official prime brokers named by the funds, while the numbers for assets are based in most cases on even splits of fund AUMs among the named PBs – unless, as in a minority of cases, the managers have stipulated a different split.
Arguably, this methodology flatters certain firms and understates the importance of others – such as Barclays Capital, for instance, which is a big player overall and particularly in fixed income and multi-strategy, but which has concentrated more on building synthetic PB relationships – where there are no official mandates, and hence not reflected in the figures here.
In addition to the regional variations, there are also some significant variations in market share by strategy type – with Morgan Stanley, for instance, still being particularly strong in equities, while JP Morgan and Credit Suisse are stronger in macro, fixed income and multi-strategy, as well as Newedge in managed futures. These variations are revealed in more detail in the annual EuroHedge and AsiaHedge surveys.
Beyond the leading group of firms named, there is also a long list of other firms that provide prime broking services around the world, with the rest of the market mainly featuring a number of other big banks like BNY Mellon and State Street which still tend to be used more by hedge funds for custody and administration services, and/or by other firms that have a niche focus.
Among the big banks that seem likeliest to break into the leading group are HSBC and RBS, which have both been investing heavily to build up full-service prime broking capabilities in the past year or so. HSBC, in particular, has been gathering an increasingly significant number of mandates in recent months, not many of which are reflected yet in the tables here – which are based on the regional surveys in Europe, Asia and the Americas conducted in the first half of 2012. So we would expect HSBC, for instance, to make a meaningful showing by the time of next year’s surveys.
The niche players outside the top 12 also feature some that have a focus on certain market segments – such as Fidelity Prime Services in US equities – or on smaller funds, such as firms like Jefferies, Merlin Securities and Interactive Brokers. There are others that also have a regional focus, such as TD Securities, Scotia Capital and RBC Capital Markets in Canada; or Bradesco and Banco Itau in Latin America.
Post-2008, and the traumatic demise of Lehman Brothers, the prime broking world has been in a dynamic state of flux – and, at a time of many continuing challenges for the industry, we expect this to continue over the next year.
|Global hedge fund prime brokerage mandates, 2012 |
|Americas hedge fund prime brokerage mandates (Absolute Return survey, 2012)|
|European hedge fund prime brokerage mandates (EuroHedge survey, 2012)|
|Asian hedge fund prime brokerage mandates (AsiaHedge survey, 2012)|