Fidelity Makes Push Into Prime Brokerage
Fidelity appoints Tesauro EVP of prime services
June 15, 2009
Fido is growling, showing his teeth and ready to eat the lunch of some much big-ger dogs.
Fidelity, familiarly known as Fido, is a relatively small dog in prime brokerage, but it is moving aggressively to recruit hedge fund clients. The latest step is the appointment of a former Goldman and Citigroup executive.
Thomas Tesauro has been named executive vice president of the Prime Services unit, which is part of Fidelity Capital Markets, the institutional trading unit of Fidelity Investments.
"I would definitely give Fido a try because they have a strong reputation for financial stability," says William Fleckenstein, a Seattle-based hedge fund manager and the president of Fleckenstein Capital. Although he says he is happy with Goldman, he adds that he would consider Fidelity's offering.
Tesauro has about a quarter century in the securities business. He ran Goldman's securities lending business. He was also co-head of Citi's global prime finance business. That included prime brokerage. Tesauro's reputation will be a key in juicing up Fidelity's prime brokerage offering, says an industry observer.
Tesauro was not available for comment, but his bosses emphasized this financial stability factor. They said numerous hedge fund officials are fearful of the consequences of counterparty risk. Today they are considering giving some or all of their business to firms that haven't been damaged by last year's disasters on the Street and that are not subject to stock market pressures.
"The prime brokerage landscape has changed," says Mark Haggerty, president of Fidelity Capital Markets, who is Tesauro's boss.
Maybe, but Matt Bienfang, senior research director, brokerage & wealth management, with TowerGroup, cautions that for Fidelity to be a serious player in this business it needs "an anchor account." This would be a hedge fund with $5 billion or more in assets, he adds. That's far more than most Fidelity prime brokerage accounts, he says.
Fidelity has made its reputation in retail funds. However, Fidelity has been positioning itself as a safe and logical alternative to the prime brokerage leviathans and has renewed is sales pitch with hedge funds.
Fidelity, said a prime industry brokerage source, already has flow. Thanks to its huge fund business, it is a huge custodian. It also has a big clearing operation, National Financial.
Fidelity, in five years, will likely be a stronger prime brokerage player, TowerGroup's Bienfang predicts. But he adds there is a limitation of how far Fidelity will go because it will always have a reputation of very strong retail institution that offers institutional services as a secondary business.
