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and aggressive in their expansion plans lie geographically , in the desire from funds to focus on their core competencies , and in new strategies and assets classes - from crypto to cannabis . Throw in the macroeconomic and geopolitical mayhem and , all-in-all , the prime brokerage space has gone through tumultuous change since March 2020 , for clients and providers alike .
A league of their own “ The one thing you know about us is that we ' re humble , modest and we know what we ' re good at ,” says Gerry Rubin , managing director , prime brokerage at Morgan Stanley . “ We ’ re not going to give false expectations to our client base . We ' d sooner say ‘ no ’ when we know we ' d be putting ourselves and the client at risk by saying ‘ yes ’.” As one of the thoroughbreds in the three-horse race at the front of the prime brokerage sweepstakes , Morgan Stanley has faced its own hurdles over the past two years . However , despite entanglement in the Archegos collapse and the retirement of some of its most experienced leaders , the bank has not lost ground to counterparts JP Morgan and Goldman Sachs in an undisputed league of their own . Some careful planning ensured that the retirements of Rich Portogallo , Alex Ehrlich and – more recently – Ed Keller , did not disrupt the business . A reshuffle has seen Penny Novick and Kim Shaw become co-head globally for Morgan Stanley ’ s prime brokerage team , while Darren Levy has taken over as head of Americas , and Rubin himself as global head of the client service group . “ It is a bit of a shuffle , but the continuity of all those names – where everybody ' s got anywhere from 20 to 30 years of experience – means we haven ' t missed a beat at all ,” says Rubin . " The lead position that we have is all relationship-based and it ' s going to remain that way . So even if we have clients with longevity and struggling on our platform we remain loyal and supportive of them . A falling angel needs us as they transform themselves into their next whether a family office , move to a platform , new strategy or just close up . So being that relationship-driven culture , it might hurt us at times where others can be more transactional and look at only the bottom line but our clients realize never ending support and loyalty regardless of their situation is most important and has been proven time and time again .” The exclusive club exists because of the trio ’ s unique set of global capabilities , which allows them to service the largest clients , and it ’ s a trend that isn ’ t going away any time soon – and will likely remain unrivalled . When Credit Suisse decided to shutter its prime business , the bank recommended BNP Paribas to its clients , but the reality for some of the larger funds was that there was only one place where their flow could go , and it was with the big three . “ It ' s fair to say , on the surface , the business is becoming increasingly commoditised ," Jon Cossey , global head of prime finance , JP Morgan . " Differentiation across the space is hard to do in some pockets but easier in others . Those points of differentiation are there for us by virtue of being a tier one Prime provider and having the full breadth of a complete global product suite .
“ Differentiation right now is around product , expertise , innovation , dependability , scalability and scope . It ' s not purely based on how aggressive one is on risk terms or how cheap are you on pricing . " We ' re in a regime where we focus on optimisation , and putting additional trading layers on top of these financing
“ We keep hearing over and over again from clients that they ' re concerned with whether the banks will still be there .” balances to extract maximum value and help clients in the best way possible .”
The challengers Outside of the biggest three primes , a group of banks with different geographical profiles and offerings exists in the likes of Bank of America , UBS , Barclays , Citi and Wells Fargo . Within this group used to be Credit Suisse , which made the Swiss bank ’ s exit of the space such a landmark moment for the prime brokerage market . In November 2021 , the bank announced it would all but exit prime services following the fallout from the collapse
“ Archegos was just one instance , it certainly was a big one , but those things are occurring - certainly not to that dramatic effect - in our industry all the time , creating opportunity or the need for providers to shift in the clients that they ' re focusing on .”
JORGE HENDRICKSON , CO-HEAD OF PRIME SERVICES , JONESTRADING
CHRIS PENTO , CEO , CLEAR STREET of Archegos Capital Management which cost Credit Suisse $ 5.5 billion and forced a wholesale review of risk management across the business . In the aftermath , the bank said it would place risk management at the core of its bank and focus on a “ culture that reinforces the importance of accountability and responsibility ”. With a market share around 5 %, the exit was significant . Clients were referred to BNP Paribas , in what seemed like a major coup for the French bank – which had also recently onboarded Deutsche Bank ’ s clients , who represented around $ 200 billion in assets . But the reality was that the larger funds had probably made their move already , eyeing the biggest three providers , while others may have explored elsewhere . The referral to BNP Paribas certainly made sense , given the bank was another major European outfit , but clients filtered through the entire ranks of the prime brokerage world and forced a major shakeup . Everyone benefited in some way or another . For BNP , which has been lauded for its growth ambitions in the space and expertise in certain asset classes , a major blow came this summer when its head of prime brokerage , Ashley Wilson , left for rival UBS . Wilson ’ s departure was one of many
22 Global Custodian Fund Services Annual 2022