Prime brokers will generate more than USD11bn in revenues from hedge funds this year, a 15 per cent increase over 2006, according to the fourth annual benchmark industry research study fro
Prime brokers will generate more than USD11bn in revenues from hedge funds this year, a 15 per cent increase over 2006, according to the fourth annual benchmark industry research study from the Tabb Group, a research and strategic advisory firm specialising in capital markets.
The study says that growing investor enthusiasm for hedge funds, which manage assets of USD1.8trn in the US alone, paired with a profitable fee structure and positive returns, has given the hedge fund industry the capital to extend its influence – and prompted increasingly intense competition for hedge funds’ business.
The report, Hedge Funds 2008: Perspectives on Prime Brokerage, Volatility and Expansion, finds that while 44 per cent of hedge fund manager say volatility in recent months has had a negative impact on returns, managers have plans to open as many as 800 offices around the globe, launch new funds and trade new markets.
‘Tabb Group estimates that industry revenues generated from financing, stock loan, custody and other prime services will surpass other institutional business lines by 2010, in particular the cash equity business, which is hovering around USD12bn a year,’ say Matthew Simon and Monica Schulz, research analysts and co-authors of the study.
In the face the current credit crisis, hedge funds have proven fashionably client-oriented, pro-actively calling clients and arranging face-to-face meetings to diffuse concerns and avoid panic, the study says.
‘Hedge funds of all stripes and sizes are following best practices when it comes to operational functions such as investor relations and risk measurement,’ says Adam Sussman, director of research at the Tabb Group. ‘This is not just a sign of the times, but an indication that the hedge fund industry has matured.
‘Although there are thousands of poseurs that dare to call themselves a hedge fund with nothing more than an Internet connection and a partnership agreement, true industry players have seen significant growth over the past year, with the average fund approaching USD4.5bn in assets under management, rising from USD1.85bn in 2006.’
The information for this study was gathered through interviews between January and March with 61 US-based hedge fund managers with a combined USD227bn in assets under management. Just under half the respondents managed assets exceeding USD1bn.
Founded in 2003 and based in New York and London, Tabb Group uses an interview-based research methodology developed by founder Larry Tabb to analyse and quantify the investing value chain linking the fiduciary, investment manager, broker, exchange and custodian.
