A new report from Aite Group, LLC looks at the prime services business. Based on Aite Group interviews with more than 15 prime services providers, the report sheds light on how these firms view their business, and profiles seven leading prime service providers.
The business of prime brokerage is in a state of transition. The hedge fund industry is seeking to regain its ground, having lost US$400 billion in assets from its 2007 high. Leading prime brokers – Lehman, Bear Stearns, and Merrill Lynch – have either vanished or been absorbed, there’s been a re-shuffling of the leader board, and the large investment banks have suffered balance sheet losses. The proliferation of mini-primes over the last few years has produced a variety of firms serving the small end of the prime brokerage market. At this juncture, prime services firms are experiencing the natural progression of the product life cycle; having passed through the introduction phase, they are shifting firmly into the growth phase, where their main goal is to increase sales and become the provider of choice for prospective clients. New players – established firms – are entering the market aggressively.
While hedge funds have taken a hit, their longer-term prospects are good. Aite Group sees a steady average annual growth for single hedge funds, which ended 2009 with US$1.6 trillion in assets and will reach US$2.1 trillion by 2013. This will be welcome news to the prime services industry.”For larger, committed prime services firms, a market of prospects well suited by a narrow set of services will continue to exist,” says Denise Valentine, senior analyst with Aite Group and author of this report. “Success will thin the field of firms. This parallels the structure at the top end of the market, where a handful of large global prime brokers dominate the business for large hedge funds, and six major prime brokers currently have 76% of the market.”
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