Q&A: Hedging on More Than Prices
December 14, 2009
A year after the hedge fund world's obituary was being readied by some market observers, things have gotten better for the industry.
Leverage has returned and there are more funds being started up, according to Steve Keller, managing director and head of Americas financing sales at Bank of America Merrill Lynch.
From his sixth-floor office in Midtown Manhattan, Keller offered details about the bank's prime brokerage business and predicted the industry's growth will come from Europe, Middle East and Africa, or EMEA, as well as Pacific Rim markets.
Keller, 40, joined Bank of America in 2006 as head of New York equity institutional sales. He was named head of equity investor sales in 2007 and appointed global head of institutional sales last year.
Prior to his work at B of A, Keller was for 11 years an equity salesperson at Credit Suisse. In that capacity, as a managing director, he was responsible for selling products and services to many of the industry's top hedge funds.
Q: In recent years, your competitive landscape has changed. What's changed for you?
Keller: Monoline dominance in this business is over. I think that it's clear that while there was more of an acute need for a multi-prime environment nine months ago, with the world settling down I believe that the need for that has slowed.
The world clearly changed last year as some competitors went out of business and others began to take some market share from incumbent providers. We feel that we will take share as clients realize the power of our franchise. There's a lot that we continue to offer that others don't in terms of breadth of the platform. The competitive environment is very, very robust and I am well aware that there are appealing alternatives. There's a significant pursuit of hedge fund assets in this marketplace right now. Some [competitors] are willing to break price to gain market share and we will compete where we need to maintain and grow business. But we don't feel the need to lead with price.
Q: Has leverage returned and to what extent?
Keller: I think it's returned. I wouldn't say it's nearly as extreme as it had been in the boom days of the hedge fund business, but the reality is as the returns continue to improve, investor appetite for risk begins to accelerate. There is no question that leverage takes on a more important role as hedge fund managers look at their portfolio of investments. The prime brokerage community will clearly benefit from that increase in leverage going forward. To what extent the leverage increases continues to depend upon sustained performance. I think investors want to see managers who have come out of a difficult 2008, a better 2009 and sustainability into 2010, before writing big checks. What you have seen in the fourth quarter is that a number of the biggest hedge funds continue to raise assets successfully. So the oft-said statement "The big are getting bigger" is an accurate one. There's no question that a number of those funds continue to have capacity and are on the road marketing. But when you think about the start-up business, which can often be a decent proxy as to the health of the hedge fund business, the startup business suddenly is gaining ground. You're seeing new momentum in startups in the U.S., in EMEA and in the Pac Rim. That bodes well for the health of both the financing business and the hedge fund business into 2010.
