06/29/2011

Credit Suisse Raises Bar for Prime Services

Credit Suisse is being more selective about the hedge fund managers it takes on as clients.

Since the start of the year, the bank’s prime-brokerage operation has opened its doors to only about 10% of the startups that have sought help with fund launches. At least that’s what prime-brokerage chief Phil Vasan told some of his hedge fund clients during a June 22 conference call. In the past, Credit Suisse typically formed relationships with about 20% of the managers who approached the bank.

Credit Suisse appears to be holding startups to higher standards in terms of managers’ backgrounds and track records, their operational experience and the sophistication of their infrastructure. It isn’t enough that a portfolio manager has the potential to deliver good returns — he or she also has to know how to run a business. The idea is to focus on managers that have the most potential to generate substantial profits down the road.

The move comes as the prime-brokerage industry is grappling with declining revenues and profits. An annual survey published June 22 by Global Custodian magazine found total prime-brokerage revenues remain well below historical norms.

By being more selective, Credit Suisse also can provide higher-quality capital-introduction services for both managers and investors, Vasan said. Indeed, the move was driven in part by requests from investors. “In a market flush with launches, investors tell us they’re challenged to sort through them all and find what they’re looking for,” Vasan told his hedge fund clients.

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