JPMorgan flexes muscle with European hedge funds

Wed Jun 22, 2011 5:12pm EDT

* JPMorgan rolls out prime broker services in Europe

* Plans to bring in as many as 15 clients this year

* Has an eye on Asia as well

By Svea Herbst-Bayliss

BOSTON, June 22 (Reuters) - JPMorgan Chase & Co (JPM.N) took a big step in expanding its footprint in the global prime brokerage business on Wednesday by launching complete prime services for European hedge funds.

Since the financial crisis three years ago when hedge funds began reevaluating relationships with prime brokers, JPMorgan Chase has worked hard to build its business in this lucrative but crowded field.

Thanks to its brand and ability to lend money and stocks to large hedge funds, JPMorgan is now generally ranked in industry league tables as one of the biggest prime brokers, along with long-time leaders Morgan Stanley (MS.N) and Goldman Sachs Group Inc (GS.N).

But industry analysts say the company still has a way to go before it is truly global in an industry that generated roughly $10 billion in revenue in 2010 and is poised to grow.

In the first quarter of 2011 alone, some 254 new hedge funds opened for business at a time when pension funds and endowments are sending billions in new money into these funds.

In Europe, JPMorgan hopes to add between 10 and 15 new clients this year, Lou Lebedin, co-head of the bank's prime brokerage business said in an interview.

"We are bringing clients on in a disciplined pace," he said, noting the bank already deals with managers who oversee about 70 percent of the hedge fund industry's $2 trillion in assets.

But even as the industry grows, the field of prime brokers is becoming more crowded with new players all promising a host of services from clearing trades, to delivering industry research, to making introductions to wealthy investors.

"It is increasingly hard for one top prime broker to differentiate itself from the others because most offer a full range of services and most operate across asset classes," said John Feng, managing director at research firm Greenwich Associates. "In a way, the difference is going to be in the degree of excellence."

For JPMorgan, which entered the business in earnest after it bought Bear Stearns' U.S. prime brokerage operation in 2008, one often cited weakness has been Asia, where it has historically not had a big presence, industry analysts said.

While JPMorgan does not break out its numbers, industry magazine AR has calculated it services $93.3 billion in assets, a 10 percent increase from the previous year, which makes it the prime broker with the most hedge fund assets.

However, with nearly three quarters of its prime broking business in the United States, JPMorgan has made no secret about plans to expand its business in Europe and Asia.

"Up until this point we've been primarily focused on building out a leading platform in Europe," Lebedin said. "As we continue to build out globally, we're now focusing on providing a more robust prime brokerage offering to clients in Asia." (Reporting by Svea Herbst-Bayliss; editing by Andre Grenon)