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By Carolina Mandl
NEW YORK (Reuters) - The departure of Credit Suisse Group AG from the business of servicing hedge funds unleashed a battle for market share among banks, with the three biggest players getting bigger, according to prime brokers and new industry data.
Credit Suisse said in November it would exit prime brokerage, which provides financing, custody, clearing and advisory services to hedge funds and institutional clients.
Since then, rivals have been fighting for its 1,800 clients, even though the Swiss bank had a deal to refer them to BNP Paribas SA, according to executives at four prime brokers.
"The battle for hedge funds has never been fiercer because the industry is not growing," said George Evans, president of data provider Convergence Inc.
The three largest banks globally in the business – Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co - widened their lead in the first half of this year, according to data provided by Convergence https://www.datawrapper.de/_/bwS8d based on hedge funds' regulatory filings.
Below that top tier, European banks Barclays Plc and BNP are making an aggressive push to gain share, according to the data and interviews. The league table, which has not been previously reported, ranked prime brokers by number of clients.
The data for the first half of the year did not fully capture Credit Suisse's exit as it had only shed about a fifth of its clients at that point. But rankings by revenue from data provider Coalition Greenwich and the views of prime brokers painted a similar picture.
Goldman Sachs, which was the largest by number of clients, grew nearly 9% by that metric over the past year through June, Convergence data showed. Close behind were Morgan Stanley and JPMorgan in the No. 2 and No. 3 spots.
"We lost some competitors and that created growth opportunities for Goldman," said Cyril Goddeeris, global head of prime services at Goldman Sachs. Goldman's share grew 11% from 2020 to March 2022, according to a source familiar with the matter.
JPMorgan and Morgan Stanley declined to comment.
In recent years, the prime brokerage business has generated more than $15 billion in revenues a year, Coalition data showed. Prime services are also strategically important, funneling clients to wealth management, investment banking and more, bankers said.
But prime brokerage is risky and capital-intensive.
Graphics: Stock pickers set for worst performance in 10 years: https://graphics.reuters.com/GLOBAL-HEDGEFUNDS/movanemwmpa/chart.png
Credit Suisse, which ranked fifth by number of clients and was the biggest European player by revenue, decided to quit in November 2021 after it lost $5.5 billion on the default of Archegos Capital Management. Credit Suisse gave up such large clients as Blackstone Inc, BlackRock Inc, Bridgewater Associates and Millennium.