Nov. 18 (Bloomberg) -- BNP Paribas SA, France's biggest bank, won prime brokerage business in Asia with hedge fund CQS (U.K.) LLP as it seeks to lure clients in the region from rivals.

The new contract with CQS, a London-based hedge fund manager that has an office in Hong Kong and oversees about $7.5 billion, adds to BNP Paribas's existing relationships with major hedge funds in the region, according to Talbot Stark, global head of BNP Paribas hedge fund relationships. He declined to name other existing clients.

``We have prime brokerage relationships with three or four of the market leaders in Asia that are outperforming their peers and look to be longer-term survivors in the Asian hedge fund market,'' Stark, 43, said in a telephone interview yesterday. ``We're in discussions with several other key players that are making decisions to change their prime brokerage providers and are seeking alternative providers that are established and committed to the region.''

Commercial banks such as BNP are seeking to win customers from established players in the hedge fund market after the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. rattled confidence in securities firms. Goldman Sachs Group Inc. and Morgan Stanley were ranked by a Westborough, Massachusetts- based Tabb Group LLC report in May as the two biggest prime brokers worldwide.

Prime brokerages offer hedge funds services such as clearing, custody, securities lending and financing for assets. They also introduce fund managers to investors.

`Financial Stability'

Paris-based BNP has been in Asia for 50 years and has operations in 11 jurisdictions in the region, including Hong Kong and Singapore, and relationships with 28 regional exchanges, according to Stark. The company began providing prime brokerage services in mid-2000, he said.

``Commercial banks are starting to win market share in prime brokerage because they have more capital and financial stability,'' said Tomoaki Kato, who covers investment banks and asset managers at Nomura Research Institute Ltd. in Tokyo. ``The prime brokerage market will become more diversified, especially in Asia, where Goldman and Morgan Stanley have been dominant.''

As part of its efforts to strengthen prime brokerage business in Asia, BNP bought a stake in Indian brokerage Geojit Financial Services Ltd., seeking to win clients in a nation of 1.1 billion people, where the government aims for an economic growth rate of as much as 10 percent in the next five years.

The French company also agreed in June to buy Bank of America Corp.'s prime brokerage unit, which caters to hedge-fund customers, for as much as $300 million.

U.S. Acquisition

With the acquisition of Bank of America's prime brokerage business, BNP has added 320 people this year to its global team, bringing the total to more than 350, Stark said. BNP is also integrating people in the San Francisco office with teams in Hong Kong to strengthen business in the region, he said.

``We're dedicated to the region and are expanding in India and Singapore and hiring in key positions as the business needs demand,'' Stark said. ``The key thing for us is to have not only a presence on the ground but also the distribution capability.''

Stark said the next wave of hedge fund clients in Asia would come from ``large U.S. hedge funds that have significant Asia-based funds.''

CQS, founded by Michael Hintze, set up its Asian office in Hong Kong in June 2004. The firm was established in 1999 to manage convertible bond arbitrage strategies for Credit Suisse First Boston, according to the company Web site.

``Their appointment is an opportunity for us to further strengthen our relationship with one of the world's leading derivative houses,'' Hintze said in an e-mail.

Money overseen by hedge funds has grown to $1.7 trillion from $490 billion at the start of the decade, according to Hedge Fund Research Inc. of Chicago. Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

``The outlook for Asia for the next 12 months is challenging,'' Stark said. ``But looking ahead five or 10 years, we think it will be a large part of the global financial market.''

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

Last Updated: November 17, 2008 21:21 EST