October 08, 2006

Banking on Hedge Funds

The big banks are turning eagle eyes on hedge funds as an avenue to earn bigger bucks. This shouldn’t be a surprise to those who closely monitor the growth of the hedge fund industry and the rewards associated with the management of funds.

Though the risks associated with hedge funds are enormous, the profits and management fees, when the funds do well, are worth it. Which is why, despite the Amaranth debacle, the banking sector is hoping to get involved in the management of hedge fund assets. 

Already worth a cool $1.3 trillion and growing rapidly each year, the hedge fund industry has added appeal for banks because of the spectacular success enjoyed by Goldman Sachs and JPMorgan which are the two largest hedge fund firms in the United States with assets worth $29.5 billion and $28.8 respectively, according to industry magazine Absolute Return. Barclays is in sixth position with $17 billion in assets.

The latest to line up for a share of the pie is Morgan Stanley, if one were to go by the news on the industry grapevine. CEO John Mack is looking to acquire the hedge fund FrontPoint,to expand the firms investment business.

But its not a bed of roses for all the banks in the business - Citigroup is struggling to show profits with Tribeca Global Management. There is also the fear of consolidation, that after the spectacular growth over the past years, the industry will stabilize just when banks enter the fray. Also, the number of new funds launched has come down from last year’s figure.

The news is not all that bad though; while there is a decrease in quantity, there is certainly no paucity of quality, going by the stupendous performance of funds in existence. The inflows for the first half of this year touched $66.1 billion after a record $42.1 billion coming in during the second quarter. With stats like these, is it any wonder that banks can’t wait to dig in?

--
Did you enjoy this post?

October 8, 2006 in Emerging Markets | Permalink




Comments

Post a comment






« Ex-Counsel of Greenberg joins Bryan Cave | Main | Hedge Funds Slowing Down? »