Asian hedge funds prefer full-service primes
21 November 2011 Tokyo
Image: Shutterstock
Asian hedge funds prefer to use full-service prime brokers that offer research and back-office capabilities as well as access to IPOs and Chinese stocks, according to the Nomura Research Institute (NRI).
In terms of research capabilities, European and US hedge funds - tagged as the main drivers for growth in the AUM of Asian hedge funds - tend to place more priority on short-term trading strategies than on fundamentals. Strong demand for research is noted for help with selection of stocks in emerging countries such as India and Indonesia in addition to developed regions such as Hong Kong and Singapore.
Meanwhile, back-office capabilities are an issue particular to Asia, where market infrastructure is not yet fully developed. Prime brokers that reliably perform functions such as trade and settlement reconciliation and issuance of settlement instructions are highly preferred since up-to-date, accurate information is not always readily available in emerging countries.
"Following the financial crisis, many hedge funds have started to use multiple prime brokers instead of entrusting their assets to the custody of just one," writes Mari Inoue, researcher at NRI's Financial Technology and Market Research department, adding, however, that the shift toward using multiple prime brokers appears to have nearly run its course.
NRI identifies four major prime brokers best-placed to provide those kinds of comprehensive services: UBS, Goldman Sachs, Morgan Stanley and Deutsche Bank. These firms collectively account for a 73 per cent share of the Asian prime broking market compared to 55 per cent in North America.
"The Asian prime broking market looks likely to remain an oligopoly dominated by the aforementioned four major investment banks for a while longer," Inoue writes.
In terms of research capabilities, European and US hedge funds - tagged as the main drivers for growth in the AUM of Asian hedge funds - tend to place more priority on short-term trading strategies than on fundamentals. Strong demand for research is noted for help with selection of stocks in emerging countries such as India and Indonesia in addition to developed regions such as Hong Kong and Singapore.
Meanwhile, back-office capabilities are an issue particular to Asia, where market infrastructure is not yet fully developed. Prime brokers that reliably perform functions such as trade and settlement reconciliation and issuance of settlement instructions are highly preferred since up-to-date, accurate information is not always readily available in emerging countries.
"Following the financial crisis, many hedge funds have started to use multiple prime brokers instead of entrusting their assets to the custody of just one," writes Mari Inoue, researcher at NRI's Financial Technology and Market Research department, adding, however, that the shift toward using multiple prime brokers appears to have nearly run its course.
NRI identifies four major prime brokers best-placed to provide those kinds of comprehensive services: UBS, Goldman Sachs, Morgan Stanley and Deutsche Bank. These firms collectively account for a 73 per cent share of the Asian prime broking market compared to 55 per cent in North America.
"The Asian prime broking market looks likely to remain an oligopoly dominated by the aforementioned four major investment banks for a while longer," Inoue writes.
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