Nedbank Pulls Plug on Prime Broker as Hedge Funds Stay Away

  • Late start hurt ability to lure alternative investment clients
  • Peregrine, RMB, Deutsche Bank, Barclays' Absa dominate market

Nedbank Group Ltd. canceled plans to run a prime brokerage after failing to attract hedge-fund clients, said John Chemaly, head of global markets at the South African bank controlled by Old Mutual Plc.

“When we did the numbers, it really didn’t make sense for us,” Chemaly said by phone on Wednesday. "What was sitting out there was really not something that we were going to be able to capture efficiently and turn it into a business.”

Nedbank’s decision comes as new hedge-fund regulations came into force on Wednesday aimed at boosting investment in the market by improving transparency and reporting requirements. The Johannesburg-based lender faced competition from five prime brokers, which provide services to hedge funds including conducting equity trades, covering margins and lending shares used in betting a stock price will fall.

Peregrine Securities, a unit of Peregrine Holdings Ltd., leads in equities trading while FirstRand Ltd.’s Rand Merchant Bank has a large share of the fixed-income business, Nedbank’s Chemaly said. Barclays Africa Group Ltd.’s Absa, and units of Deutsche Bank AG and Investec Plc also offer prime brokerages. South African hedge funds had 62 billion rand ($4.5 billion) under management as of June 30, according to Novare Investments Pty Ltd.

Nedbank entered the industry late and its plans stalled several times over the last few years, leaving the bank with just two clients when the decision to exit was made in recent weeks, Chemaly said. The company had hoped that more hedge funds would begin using two prime brokers for their needs, such as one for equities and another for fixed income, he said.

Chemaly declined to say how much was spent on the prime broker initiative and said a few jobs would be added for what he called the bank’s continued offering of prime services -- as opposed to brokerage -- such as trading-room operations.

Nebank was up 1.5 percent at 222.9 rand in Johannesburg trading as of 11:50 a.m. That pares this year’s decline to 10.4 percent.

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