While the hedge fund market is in disarray in the aftermath of the Lime Asset Management fiasco, the rankings of securities firms in prime brokerage services (PBSs) have changed.
Prime brokerage refers to a bundle of services that investment banks and other major financial institutions offer to hedge funds. Services included within a prime brokerage bundle may include cash management, securities lending, leveraged trade executions and more.
Mirae Asset Daewoo reclaimed its No. 1 position that was lost to Samsung Securities at the end of last year. KB Securities, a latecomer which placed fifth, rose to third place by doubling its PBS balance in a year.
As of end-January, Mirae Asset Daewoo ranked first with a 22.7 percent share. Its balance reached 7.81 trillion won, up 150 billion won from 7,661.7 billion won at the end of December last year.
By contrast, Samsung Securities’ PBS balance fell by more than 100 billion won from 7.87 trillion won to 7.77 trillion won in one month.
KB Securities emerged as a dark horse in the PBS market. KB Securities' net asset totaled 6.25 trillion won, accounting for 18.1 percent of the PBS market. The figure nearly doubled from January 2019. In the PBS market share standings, KB Securities jumped by two notches to third place ahead of NH Investment & Securities and Korea Investment & Securities.
Liquidity problems in the private equity market worsened due to the termination of total return swap (TRS) contacts by the AlpenRoute Asset Management, which followed the Lime Asset Management debacle.
A TRS contract is a type of lending in which a securities firm receives deposits as collateral and buys assets on customers’ behalf. Some securities firms came under heavy fire as they moved to raise the amount of deposits for TRS contracts or close transactions early to reduce risks.
Despite controversies over private equity funds, competition in the PBS market is expected to intensify this year as securities firms’ PBS amount stay around 34 trillion won. Private equity risk is surfacing, but relatively high yields are still expected, which has a limited impact on putting investors off from the PBS market.