Institutional Investor's Alpha Magazine - October 2007 - (Page 52)

Alpha Awards: Top Service Providers Asia,” says James Bergstrom, head of Ogier’s investment funds practice. “And I expect in years to come, as the economic nexus of the world shifts east, greater numbers of the offshore products will shift east as well.” Like the other top offshore law ﬁrms, Ogier works with the authorities in the various jurisdictions to help draft and change regulations. The ﬁrm recently advised the Jersey Financial Services Commission as part of a working group to help make its jurisdiction’s registration process more attractive to hedge funds. Maples and Calder has had a longtime presence in Grand Cayman, the epicenter of the offshore hedge fund industry. The ﬁrm has 46 attorneys in its hedge fund practice, 25 of whom are in Cayman. In January 2006, Maples expanded its business to Dublin, acquiring local Irish ﬁrm Binchys. Maples, which ﬁnishes second overall, was involved in several key start-ups, including New York–based Old Lane Capital Management, which was acquired earlier this year by Citigroup. Maples also worked on the wind-down of Greenwich, Connecticut–based hedge fund Amaranth Advisors. Walkers, which repeats at No. 3 this year, completed its acquisition of Jersey-based law ﬁrm Crills Advocates in July 2006 and has also worked with the Jersey regulators, though more informally than did Ogier. Walkers attorney Jonathan Heaney expects the new guidelines, which allow qualiﬁed hedge funds to set up almost immediately, as opposed to having to wait for approval from the commission, to attract more business from Europe. Walkers, which has many large clients, is the top choice among the firms ranked in Alpha’s Hedge Fund 100. only to the bank but also potentially to its prime brokerage clients. Hendel is trying to determine how to translate their ability to provide commentary on market occurrences into a unique offering for hedge funds without compromising proprietary client information. “People want to know what is going on with the industry,” Hendel says. “We are well positioned with a large and sophisticated client base to provide plenty of insights.” Such thinking has helped Morgan Stanley stay well ahead of the prime brokerage pack. For a third straight year, the firm emerges as the leading overall prime broker in the Alpha Awards™. Goldman, Sachs & Co., widely viewed as Morgan Stanley’s closest rival, holds on to its No. 2 position, edging out third-ranked Banc of America Securities. Morgan Stanley’s dominance this year is clear. We asked hedge funds to rate their prime brokers in ten different areas — ranging from Client Service and Financing to Capital Introduction and Trading Technology — and Morgan Stanley wins in nine of them. If not for Citi, which is No.1 in Securities Lending, Morgan Stanley would have a clean sweep. Second-place Goldman Sachs rates highly among hedge fund managers in most areas. Although the firm came later to the game than rivals Morgan Stanley and Bear, Stearns & Co. — Goldman created Global Securities Services, which houses prime brokerage, in 1993 — it made up for lost time by emphasizing client service and the firm’s global reach. Goldman, moreover, was early to see the advantage of using prime brokerage as a portal to the rest of the bank. “We have always viewed client relationships holistically,” says George Liberopoulos, co-COO of U.S. prime brokerage at Goldman in New York. “We help our prime brokerage clients access the resources of the whole ﬁrm.” Goldman’s global prime brokerage business is co-headed by Mitchell Lieberman and Ravi Singh. But Goldman’s hold on No. 2 is slipping. Banc of America Securities, which repeats at No. 3, beats Goldman in four areas of service, including Operations and Financing. Banc of America has been a big beneficiary of hedge fund managers’ preference for multiple prime brokers. That trend traces its roots to 1998 and the decision by lenders to pull funding from Long-Term Capital Management, which led to the Greenwich, Connecticut–based hedge fund ﬁrm’s near-collapse and eventual bailout. Since then hedge fund managers have turned to multiple sources of funding to diversify the risk of loans being pulled. Banc of America has also benefited from the increasingly complex ﬁnancing demands of hedge funds — which increasingly are looking for partners with big balance sheets that are able to put more of their own capital at risk. “We have grown our business enormously over the last ﬁve years and are capturing signiﬁcant market share,” says Christopher Pesce, global head of prime brokerage for Banc of America Securities. In recent months, he says, Photo by Evan Kafka for Alpha PRIME BROKERAGE T he summer’s market volatility was a nightmare for statistical arbitrage hedge fund managers, many of whom lost money when their computer models failed to account for changes in equity pricing created by forced selling among portfolio managers at troubled hedge funds and mutual funds. “Some stat arb managers got pretty beaten up,” says Stuart Hendel, global head of prime brokerage at Morgan Stanley. He rejoined the firm in February, having been brought in by his old boss, longtime prime brokerage chief Richard Portogallo, who had been promoted to head of U.S. equities for the investment bank. Hendel says that most statistical arbitrage traders quickly reduced their leverage in August; those that managed to rebound later in the month increased it just as quickly. In fact, there were very few instances this summer in which prime brokers had to step in and raise margin requirements or pull funding from managers. The real-time intelligence that Hendel and his team can glean in such moments of market stress are useful not 52 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2007

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2007

Institutional Investor's Alpha Magazine - October 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Applied Knowledge The Good Guys: Autism Advocate Interview: Nerves of Steel Cover Story: Ivy League Education Alpha Awards: Top Service Providers: Trying Times Strategies: Passage to India Profile: The Oracle of Irvine Alpha Bytes: Futurama Research Center: Funds of Funds 50 Unhedged: Commentary: Crisis? What Crisis?

Institutional Investor's Alpha Magazine - October 2007

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