BofA-Merrill Starts VIP Program for Asia Hedge-Fund Startups

  • Emerging-manager platform to add five Asia startups each year
  • The chosen startups to enjoy VIP access to bank's resources

Bank of America Corp.’s Merrill Lynch unit plans to sign up five Asian hedge-fund startups a year as part of its emerging manager program that gives them exclusive access to the bank’s resources, usually reserved for managers of billions of dollars.

"We want to channel our resources to a fewer number of high-quality startups,” said Ben Williams, Hong Kong-based head of Asia-Pacific financing sales. The platform, which has been in operation in the U.S. for three years, will give new hedge funds full access to resources in the bank’s equity division, including research, access to corporate clients, and prime-brokerage services that would enable them to borrow stocks and help them trade, Williams said.

Merrill Lynch is luring startups that are most likely to succeed and become lucrative long-term clients, as new regulations have made it more expensive for banks to offer services such as stock loans to hedge funds. Meanwhile, smaller hedge funds are struggling to raise capital and meet the rising costs of running a business.

Basel III

The Basel III capital and liquidity rules introduced to prevent a repeat of the 2008 global financial crisis have raised the funding costs of prime brokers and reduced the amount available within banks’ balance sheets for hedge-fund clients, according to a JPMorgan & Chase Co. report last year. Prime brokers offer services to hedge funds such as lending cash and stocks, settling trades and linking them to potential investors.

The rules are forcing banks to increase their focus on clients whose size and investment styles can translate into higher returns, while tying up less of their balance sheets, according to the JPMorgan report.

Since the program began in the U.S., Merrill Lynch has added 15 managers each year, Williams said. Asia became the second region in the program in June. The idea is to support managers who show the promise to become significant players in the industry, he said.

Merrill Lynch picks managers which, among other things, have investment styles and track records that appeal to investors, employ strategies that potentially allow them to oversee large amounts of assets and have sound operational systems, said Williams.

There have been 125 Asian hedge-fund startups since 2012, according to Eurekahedge Pte. Their average initial size ranged from $18.7 million in 2013 to $21.3 million this year. Of the 125, 9.3 percent have boosted assets by more than $100 million since they began trading, while 31 percent saw no change or lost assets, according to the Singapore-based data provider. About 8 percent of the 70 startups founded in 2012 and 2013 have since been shuttered.

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