Morgan Stanley is targeting hedge funds as part of renewed efforts to reclaim its top position in stock trading, a title it lost to Goldman Sachs following the collapse of Archegos Capital Management in 2021, according to a report by the Financial Times.
Under the leadership of new CEO Ted Pick, formerly the head of the bank’s equities trading division, Morgan Stanley has made significant strides in closing the gap with Goldman Sachs, bringing it to its narrowest since 2022.
In the latest quarter, Morgan Stanley reported a nearly 20% increase in equities trading revenues, reaching $3bn, surpassing analysts’ expectations. This contrasts with a 7% rise to $3.2bn at Goldman and a 21% jump to just under $3bn at JPMorgan Chase.
Since the beginning of the year, Morgan Stanley has shown increased willingness to extend credit through its prime brokerage division, which serves hedge funds and other clients. According to clients and competitors, this marks a significant shift under Pick’s leadership.
A hedge fund executive described the change since Pick’s appointment as CEO in January as “night and day.” A Morgan Stanley executive also highlighted the bank’s focus on attracting new quant hedge funds, such as AQR and Two Sigma, alongside traditional equity hedge funds that engage in long and short stock positions.
Morgan Stanley was an early adopter in courting quantitative hedge funds, investing heavily in the technology necessary to support their operations. However, after the Archegos scandal, which resulted in $1bn in losses for the bank, Morgan Stanley became more cautious in its client dealings. This setback led to a comprehensive review of its client base and risk management practices, giving Goldman Sachs an opportunity to outpace Morgan Stanley in equities trading.
Since the start of 2022, Goldman Sachs has consistently outperformed Morgan Stanley in equity trading revenues in eight out of 10 quarters, generating $29bn, some $2.4bn more than Morgan Stanley.
