Institutional Investor's Alpha Magazine - October 2007 - (Page 54)

Alpha Awards: Top Service Providers have recently made signiﬁcant strides in prime brokerage, others have not fared so well. Deutsche Bank, which has been working to build its prime brokerage business on the back of its strength in swaps and other derivatives, drops one place to No. 7 this year. To its credit, Deutsche improves its standing among Hedge Fund 100 ﬁrms, ﬁnishing third, up ﬁve places from a year ago. UBS’s fall is more pronounced. The Swiss bank drops from No. 4 in 2006 to eighth. UBS took criticism for its failure to truly integrate prime brokerage with the rest of the bank’s services. But, in part, UBS’s position reflects not so much the weakness of the bank, which four years ago hired Alexander Ehrlich from Goldman to build its prime brokerage business and has since put hundreds of millions of dollars behind the effort, but how tight the competition among prime brokers has become. Bear Stearns, which moves up three places this year to finish at No. 6, has been one of the prime brokers hit hardest by the subprime meltdown. Clients grew nervous early this summer when the firm was forced to close two of its own hedge funds — the Bear Stearns HighGrade Structured Credit Strategies Master Fund and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund — after suffering significant losses. Many were concerned that Bear would tighten its lending rates in its prime brokerage unit; a few were worried that the ﬁrm might abandon the business altogether. Louis Lebedin, Bear Stearns’ head of prime brokerage in New York, acknowledges that his ﬁrm lost some clients. However, he adds, many hedge funds remain loyal to the bank. “I believe whatever we lost was temporary,” says Lebedin. “We already have some clients who are bringing business back.” Analysts tend to agree with Lebedin’s assessment. “Prime brokerage is a core business for Bear Stearns, and you don’t give up on your core business,” says Richard Bove, a Lutz, Florida–based ﬁnancial institutions analyst with New York–based boutique investment bank Punk, Ziegel & Co. “They are going to fight hard to keep it.” According to Lebedin, Bear Stearns is expanding its prime brokerage business globally, especially in Asia. Winning clients could, however, prove more difficult for other firms. Lehman Brothers and Merrill Lynch both have been struggling to grow their prime brokerage businesses. Unlike Bear, neither Lehman Brothers nor Merrill Lynch has improved its overall ranking in this year’s Alpha Awards. The firms rank No. 9 and No. 10, respectively. Nonetheless, neither firm is likely to abaondon the business. “Merrill Lynch and Lehman Brothers are going to continue to compete very aggressively,” says Bove. “I doubt anyone is going to walk away.” One standout name in this year’s Alpha Awards is Merlin Securites. The firm was co-founded three and a half years ago by Stephan Vermut, a former head of prime brokerage at Banc of America Securities and one of the pioneers of the industry, and rates No. 1 among hedge fund ﬁrms with less than $1 billion in assets. Merlin, which has ofﬁces in San Francisco and New York, has found a niche for itself using superior client service and technology to attract smaller hedge funds, which these days are being turned away by some of the banks and broker-dealers. THE HEDGE FUND 100’S FAVORITE FIRMS How do the biggest, most-sophisticated hedge funds rate their accountants, lawyers and other service providers? We looked to the Hedge Fund 100 — Alpha’s exclusive ranking of the world’s biggest single-manager hedge fund firms — and recalculated the rankings using only their votes. As the tables below show, some of the results are very different from the overall Alpha Awards™ rankings. Some smaller providers did not receive enough votes to be ranked here, including BDO Seidman, the No. 1 overall accounting firm. As was true last year, the Big Four accounting firms do well among Hedge Fund 100 voters. ACCOUNTING Rank 2007 2006 Firm DELOITTE TOUCHE TOHMATSU PRICEWATERHOUSECOOPERS ERNST & YOUNG KPMG GOLDSTEIN GOLUB KESSLER INTERNATIONAL FUND SERVICES GOLDMAN, SACHS & CO. CITCO FUND SERVICES FORTIS PRIME FUND SOLUTIONS HSBC ALTERNATIVE FUND SERVICES GLOBEOP FINANCIAL SERVICES BANK OF NEW YORK MELLON CORP. * WALKERS MAPLES AND CALDER SEWARD & KISSEL SCHULTE ROTH & ZABEL SIDLEY AUSTIN SIMMONS & SIMMONS CITI MORGAN STANLEY DEUTSCHE BANK BEAR, STEARNS & CO. GOLDMAN, SACHS & CO. LEHMAN BROTHERS CREDIT SUISSE UBS MERRILL LYNCH 1 2 3 4 5 1 2 3 4 5 6 7 1 2 1 2 3 4 1 2 3 4 5 6 7 8 9 1 3 2 4 — 2 1 3 — 4 — — 2 1 1 3 2 — 9 2 8 6 1 4 3 5 7 ADMINISTRATION LAW — OFFSHORE LAW — ONSHORE PRIME BROKERAGE * Bank of New York Co. and Mellon FInancial Corp. merged effective July 2, 2007. 54 • 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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