As prime brokers pull the plug on big and small clients, is there any way back to the good old days for hedge funds?
It was fun for a while – watching investment banks bow to hedge funds, offering them ever more generous terms in order to win their business and clambering over each other to try to please the new financial institutions that looked set to take over the world and steal investment banking business as well as investment banking talent.
But the power struggle of the past few years has ended abruptly, and the banks have emerged as the winners.
An increase in margin requirements for the smaller hedge funds, whose business prime brokerages could survive without, was only to be expected. But to seize the assets of valued and important firms such as Carlyle Capital was unthinkable one year ago.
Are banks biting the hand that feeds them, destroying the high-velocity traders that have boosted their spread and commission earnings? Perhaps, but what choice do they have? The hedge fund boom, as it will undoubtedly come to be called, looks as if it is over. About 9,000 hedge funds have been set up: there aren’t that many investment geniuses in the world.