The first quarter of 2018 saw prime brokerage revenues jump 20 per cent to USD4.9 billion for the largest investment banks according to a report from Coalition, which monitors the industry. 

In many, if not most, cases, capital introduction teams at prime brokers have tended to function as ‘quasi marketers’ for their hedge fund clients. The name of the game appears to be getting their clients in front of as many investors as possible, and quite often this means doing so without truly taking the time to understand what investors are looking for.

The art of a good stock picker is identifying companies in obscure parts of the market that have yet to reach their full value potential, or, when it comes to shorting, have artificially high valuations. But aside from this, another skill is being able to construct trades that move anonymously through the market without signaling to others what the portfolio manager is doing. 

Mini primes and those looking to establish new prime brokerage businesses are currently a big focus for SS&C Advent, according to Roger Woolman, Business Development Director, Asset Management & Alternatives.

With the rise of social media platforms over the last decade, led by Facebook, the way we think about connecting and interacting with people has drastically changed. LinkedIn provides a similar experience for our professional lives, while Amazon and Netflix seemingly know what we want to buy or watch before we’ve even thought about it. 

Regulation continues to bite and influence the way investment banks structure their business activities. Most notably for the hedge fund industry, the banks are being forced to reassess their activities pertaining to prime brokerage. Five years ago, banks remained in denial about the impact regulatory reforms would have. But then a black swan event occurred. 

The last thing any hedge fund manager wants is to be off-boarded by a Prime Broker. It can be a destabilising and unsettling experience, potentially leading to a loss of confidence among investors. It is vital, therefore, to find the right Prime Broker that can partner with a manager based on a clear understanding of business wants and needs.