Credit Suisse Group and Deutsche Bank were named the best prime brokerages for the second year in a row, according to Global Custodian’s annual survey. Rated just below the co-winners were Morgan Stanley, Goldman Sachs, JPMorgan Chase, and Bank of America Merrill Lynch.
The rankings were reported by Global Custodian, a leading magazine covering the international securities services business. The magazine based its rankings on a mix of financing, technology, client services, margining and other categories. Credit Suisse is known for favoring larger clients (over $5B in assets) compared to Deutsche Bank.
The survey polled over 3,200 respondents, about 55% more than last year and 12% more than in 2008. As the magazine sought to interview as many hedge funds as possible, the increase in responses suggests the sector continues to rebound from its 2008 woes.
The two European bank’s stability in capital and personnel through the global financial crisis earned them the trust of many hedge funds.
“Coming out of the crisis, hedge funds seek strong bank providers who will deliver not only a first-in-class service but maintain a steady hand for them into and through the next crisis,” Philip Vasan, Credit Suisse’s global head of prime services, told Dow Jones Newswires.
The Swiss bank has climbed the rankings over the past few years, jumping from 7th in 2008. The survey found that Credit Suisse was favored among bigger funds with assets over $5 billion, while Deutsche Bank fared better among those below $5 billion.
“For funds less than $1 billion, we haven’t deserted them during the down cycle. In fact, we have stepped up investments in the segment and are playing more aggressive to cater to the needs of the start-ups,” Jon Hitchon, a Co-Head of Deutsche Bank’s Global Prime Finance, told Dow Jones Newswires. “Our synthetic platform is also attractive to larger funds which tend to be more balance sheet intensive.”
While funds continue to recover from their recent dark age, liquidity is still hard to come by as investors remain cautious about risk. Deutsche Bank said it looks to satisfy hedge funds’ service needs as well as funding needs.
“We have a flexible balance sheet to finance hedges’ needs. This is more relevant these days as our clients are only leveraged up to a third of their assets on average,” Hitchon added.
Results from the survey, the most closely watched in the hedge-fund industry, are presented in a format similar to the popular Zagat restaurant guides, with direct quotes from participants making up a bulk of the commentary on each company. The survey breaks down prime brokers’ performance based on region and assets under management of the funds they service, along with whether the funds are single- or multi-strategy. It gives prime brokers “best in class” awards for good scores in individual categories.
Global Custodian also sheds light on other statistics, such as what percentage a prime broker is a particular fund’s main or sole broker. But as hedge funds are more worried about counterparty risk highlighted during the financial crisis, more fund managers have switched to using multiple prime brokerages.