BrokerDealers’ Prime Brokers Cutting Back on HF Clients:Goldman Sachs Squeeze

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BrokerDealer.com blog update courtesy of extract from Finalternatives.com

FINALTERNATIVESNew U.S. banking regulations are putting the squeeze on prime brokerage units, and none are feeling it more than clients of brokerdealer Goldman Sachs.

The Wall Street giant has cut ties with some unprofitable clients and begun to impose new fees on others, as it seeks to cut its assets to increase its leverage ratio, which must rise from 4.5% to at least 5% by 2018. “It’s a total redefinition of what’s a good customer,” S3 Partners’ Robert Sloan told The Wall Street Journal.

In order to reduce its balance sheet, Goldman has asked clients to withdraw cash held in their prime-brokerage accounts. It is also charging more to finance trades and has added fees for untapped credit lines, according to the Journal.

Whereas Goldman and other prime brokerages have previously evaluated their business based on revenue, Goldman is now telling clients it is judging theirs on return on assets. The result has been that some hedge funds that produce little or no return for the bank have been asked to take their business elsewhere.

For the full coverage from Finalternatives.com, please click here.

Private Equity Firm Takes Coffee Break from Israel Company; IPO Provides Exit Strategy

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FINALTERNATIVES  BrokerDealer.com blog post courtesy of below extract from hedge fund industry newsletter FINalternatives.com

After six long years that must feel more like 60 for TPG Capital, the private-equity giant is nearly free of an investment that has made it money, but at a price.

TPG and Strauss Group are near a deal to list Strauss Coffee, the Israeli company in which TPG took a 25% stake in 2008. The deal will allow TPG to exit an investment that has produced more headaches and disappointment than solid returns.

When TPG and Strauss consummated their partnership, both had grand expansion plans and hopes to build a global coffee giant. But TPG’s purchased closed just days before Lehman Brothers collapsed, and the deal-making environment dried up, giving Strauss Coffee few takeover targets. In addition, the company struggled in regions like Russia and Eastern Europe.

For the full story, please visit www.finalternatives.com

Boston Deal Firm Nears Pact to Buy Stake in Hedge Fund Titan

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Brokerdealer.com blog news extract courtesy of the Wall Street Journal.

A Boston investment firm is nearing a deal to buy a stake in hedge-fund giant D.E. Shaw Group for more than $500 million from the estate of Lehman Brothers Holdings Inc., according to a person familiar with the matter.

Affiliated Managers Group Inc. AMG +0.25% has bid for the 20% stake in a deal that would value D.E. Shaw at more than $2 billion. An agreement in principle has been reached but a final deal isn’t imminent and could still fall apart, according to people familiar with the matter.

D.E. Shaw, based in New York, manages about $32 billion and is known for its quantitative-trading strategies. Lehman Brothers, the investment bank that collapsed in 2008, paid between $750 million and $800 million for the stake in 2007, part of a wave of activity before the financial crisis by banks looking to buy their way into the hedge-fund business.

Investment groups have raised billions of dollars recently to buy minority stakes in hedge funds, prompting some in the industry to question whether the market is frothy.

The deals are a way for stakeholders to profit from hedge-funds’ management fees and performance, and buyers see more opportunity as banks have pulled back to adapt to stricter capital rules on managing capital and risk.

Hedge-fund clients don’t always like the deals, worried they are a way for managers to cash out. But managers and stake buyers say the sales are often structured to ensure that managers remain active, can help motivate employees if they creates a more attractive incentive structure and can increase the long-term odds a firm will endure beyond its founder’s involvement.

For the full story, please visit the Wall St. Journal article.