WEST PALM BEACH, FL (www.hedgeco.net) – Investment banks are expressing new concerns over their revenues coming from hedge fund business. Some brokerage banks are concerned that heavy redemptionsfrom hedge fund investors might affect their income coming from hedge funds such as commissions and brokerage fees. According to reports, some investment banks may have overreached to hedge funds inorder to gain a piece of the hedge fund pie.
Brad Hintz, a senior Wall Street analyst at Sanford Bernstein said, “Demand for profitability is pushing the wannabes to be more aggressive on credit terms.” He added, “The concern is that those who are pushing into prime brokerage are either aggressively lending or cutting trading commissions to get the business.�
While the hedge fund business is still strong and more assets flowing in, some managers suffered significant losses in the credit markets following the downgrading of Ford and general Motors bond rating few weeks ago. Last week, the head of risk management for Citigroup’s corporate and investment bank said the impact of such losses were not quite significant in their operations. Jessica Palmer of Citigroup said, �We have not had any exposure to any of the hedge funds that have blown up recently.�
Some Hedge fund managers have reported losses in their credit portfolios. GLG Partners reported its convertible bond fund lost about 5.2% in April, while Vega Asset Management said it lost between 1% and 5% in some of its funds. Man Group reported about 3 percent losses in some of its credit portfolios
Federal Reserve Chairman Alan Greenspan has sent some signals that he is watching the situation carefully. In a recent speech, Greenspan said, “There are signs that competitive pressures may be eroding the protection that banks achieve through collateral requirements by reducing the initial margins that they obtain from hedge funds.”
Goldman Sachs, Morgan Stanley and Bear Stearns have dominated the brokerage business. But lately stiffer challenges have been coming from the newer arrivals such as UBS AG, Merrill Lynch Lehman Brothers Deutche Bank AG, and Bank of America.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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