JP Morgan chases hedge funds with new custody-plus unit
JP Morgan has become the latest large bank to bring its custody and prime brokerage businesses under one roof, reacting to demand for a safer service from hedge funds, many of which have still not recouped assets trapped by the collapse of Lehman Brothers.
The US bank is combining the prime brokerage unit is acquired through its purchase of Bear Stearns last year with its existing Treasury Services custody arm, according to a statement yesterday.
Devon George-Eghdami, managing director and head of the new unit at JPMorgan, said the bank had combined the two divisions as hedge fund managers were increasingly running long-only strategies, while traditional asset managers were taking more short positions for a new generation of funds and this had created a blurring in the lines of demand.
She said this pairing would offer both the security of housing assets along with financing what would be provided by a prime broker. “Challenging market conditions have underscored the importance of partnering with a prime brokerage that can safeguard assets in a separate depository."
Other banks have also been merging these businesses. Financial News revealed in July that HSBC, another large custodian, launched a similar division that brought together its custody and global markets divisions.
Hedge funds have become attracted to this dual service, which also offers the chance of saving money by eliminating the need for a third-party custodian, since the collapse of Lehman Brothers, a year ago next week.
Many hedge funds held assets as collateral for their activities with Lehman in the US bank's prime brokerage unit, rather than placing them under the stewardship of a third party custodian.
Those that had not protected assets in this way found that when the investment bank collapsed, it triggered the start of lengthy and in some cases as-yet-fruitless task to retrieve them.
--write to epfeuti@efinancialnews.com
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