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Research: Alpha Awards™ Top Service Providers
The
Trillion-Dollar
Payoff
By Nina Mehta
Accountants, administrators, lawyers and prime brokers are
scrambling to service the $1 trillion hedge fund industry. We tell
you who is winning the race in our first-ever Alpha Awards™.
I
f a hedge fund wants to expand from $500 million to $3 billion and from one investment strategy to four or more, what should it do?
Five years ago that question would have seemed
far-fetched. Now, says Richard Portogallo, global
head of prime brokerage at Morgan Stanley in New York, it’s
a question more and more hedge fund managers are asking.
As managers try to appeal to the growing pool of institutional investors allocating money to hedge funds, their
priorities are shifting. They need to be bigger so they can
absorb more capital, and they need stronger infrastructures
that can accommodate rapid growth and expansion into
new products and asset classes. To accomplish this, many
hedge fund managers are turning to service providers that
“understand the industry from a bottom-up perspective
and can help them grow their businesses,” says Portogallo.
Hedge funds have always looked to prime brokers, law
firms, accountants and administrators for the key services
they need to function. Now these service providers are
expanding their businesses to cater to the changing and
growing needs of hedge funds.
The hedge fund industry crossed the $1 trillion threshold earlier this year, doubling its assets under management
from just five years ago, according to Hedge Fund Research,
a Chicago-based data provider. The number of funds of
hedge funds and single-manager funds now exceeds 8,200,
compared with 3,900 at the end of 2000. Many industry
experts think hedge funds will reach $2 trillion in assets
within the next few years. Pension funds, endowments,
foundations and other institutional investors are driving
the growth, representing about 30 percent of net new flows
into hedge funds in mid-2004, compared with less than 5
percent in 2000, according to a study by Bank of New York
and Casey, Quirk & Associates, a Darien, Connecticut,
investment management consulting firm.
With all this growth, hedge funds have become the
clients of choice for Wall Street
— and for good reason: They are
™
more active, frequent traders than
traditional asset managers. Hedge
funds deploy their capital globally, scouring foreign markets for
Accounting
investment opportunities across
Rothstein Kass
new products and asset classes,
Administration
especially as the performance in
International
Fund Services
established strategies such as convertible arbitrage has fallen off in
Law
recent years. Big, sophisticated
Seward & Kissel
hedge funds tap pricey investPrime Broker
ment banking expertise as they
Morgan
Stanley
move into the private equity market or pursue leveraged buyouts.
Many of the biggest hedge fund managers are pursuing multiple investment strategies to generate returns and diversify
their portfolios. All this translates into more work and
opportunity for hedge fund service providers.
“A single-strategy $2 billion hedge fund may have the
same basic legal needs as a $500 million hedge fund, but
if a hedge fund complex has multiple funds with differing
ALPHA AWARDS
Top Firms
All contents of this article are the exclusive property of Institutional Investor,
Inc., and Institutional Investor’s Alpha. Reproduction of this article, whether in
whole or in part and by any means whatsoever, is prohibited without the
express written permission of Institutional Investor, Inc. Alpha Awards™ is a
trademark of Institutional Investor, Inc., and may not be used except pursuant
to a special written license from Institutional Investor.
“Institutional investors demand more due diligence, ask more questions and want more details.” Richard Portogallo,
global head of prime brokerage, Morgan Stanley. On West 48th Street, New York, September 14, 2005.
Photo by Juliana Thomas for Alpha
Alpha Awards Top Service Providers
ALPHA AWARDS™
Top Prime Brokers
Rank Firm
1
Morgan Stanley
2
Credit Suisse First Boston
3
Goldman, Sachs & Co.
4
Bear, Stearns & Co.
5 (tie) Banc of America Securities
UBS
Morgan Stanley
Richard Portogallo, 45,
Global Head of Prime Brokerage
If you’re starting a hedge fund, securing Morgan Stanley
as your prime broker could give you more time to focus on
investments instead of operations. The firm is “head and
shoulders above the competition,” says one hedge fund
manager. Another praises its “first-class client service
and superior technology.” Although Morgan Stanley has
taken its lumps in recent months, with the departure of
ex–chief executive officer Philip Purcell and the return of
John Mack, its prime brokerage unit remains the
industry’s gold standard. Led by 19-year Morgan Stanley
veteran Richard Portogallo in New York, the group has
about 500 people, almost half in client service, and
provides prime brokerage for more than $300 billion in net
client assets for more than 700 hedge fund firms.— N.M.
strategies, the amount of work quickly multiplies,” says
John Tavss, head of the alternative investment practice at
Seward & Kissel, a New York–based law firm that has been
advising hedge funds for more than half a century. Seward
& Kissel helped onetime journalist Alfred Winslow Jones
set up the first hedge fund in 1949 and still represents
A.W. Jones & Co., which now primarily manages funds
of hedge funds.
The hedge fund service provider industry is undergoing
its own transformation. “Service providers are becoming
bigger and stronger because hedge funds are getting bigger
and stronger,” says Jean-Louis Juchault, founder and chief
executive officer of Systeia Capital Management, a $1 billion, Paris-based hedge fund that’s active in convertibles,
mergers and acquisitions and event-driven strategies.
Service providers are expanding their relationships
with hedge funds so they can increase their market share
or cross-sell more services. Lawyers are providing expertise
on swaps contracts and other customized transactions.
Full-service fund administrators, which provide net-assetvalue calculations and portfolio accounting, are offering
more-extensive and independent portfolio pricing services
to their clients. Auditors are spending more time verifying
the accuracy of fund accounting and assessing the tax
implications of potential transactions as hedge funds
move into more-illiquid products and asset classes. Many
hedge fund service providers are also extending their services across traditional lines of business, with some fund
administrators offering tax preparation services and global
banks moving into fund administration.
The changing regulatory landscape is also creating
opportunity and demand. Last year the U.S. Securities
and Exchange Commission ruled that advisers to onshore
hedge funds with at least $30 million in assets, 15 or more
clients and whose funds have investor lockup periods of
less than two years must register as investment advisers by
February 2006. As a result, the majority of currently unregistered U.S.-based hedge fund advisers will soon be compelled to register and fulfill a range of legally mandated
compliance obligations.
As hedge funds grow in size and sophistication, client
service has become the industry mantra. That means a
“commitment to help us on any level — technology, integration with the rest of the firm or consulting services —
at any time,” says the chief operating officer of a U.S. East
Coast hedge fund with more than $2 billion in assets. Of
course, not all service providers are created equal. “Many
overpromise what they can deliver,” says a manager of a
multibillion-dollar hedge fund, based on the West Coast,
that invests in multiple asset classes. “This is an industry
ripe with overpromise.”
To determine which firms have or haven’t delivered on
their promises, Alpha went directly to the hedge fund managers that use their services. This summer we surveyed more
than 600 hedge funds, representing more than $675 billion in single-manager hedge fund assets. We surveyed
more than half of the 100 biggest single-manager hedge
fund firms, as well as almost 100 funds of hedge funds. We
asked them to rate their accounting firms, fund administrators, law firms and prime brokers on dozens of specific
service issues — everything from competitiveness of rates
for securities lending to accessibility of senior management.
Our inaugural Alpha Awards rank the top prime brokers, law firms, fund administrators and accounting firms
as rated by their hedge fund client. In addition to ranking
the top firms based on overall quality of service, we rank
the leading service providers in 23 more specialized categories, such as securities lending for prime brokers and
regulatory compliance for accounting firms. For more
information on the methodology, see “Compiling the
Ranking” on page 36.
In most categories the biggest and most established
service providers scored best. This suggests the importance
hedge funds place on working with firms that know their
businesses and have proven track records. But knowledge
and reputation can’t make up for mediocre service. Hedge
fund managers know that a winning investment strategy
can capsize because of shoddy accounting or financing that
dries up just when it’s needed most.
In prime brokerage Morgan Stanley takes top honors
by a wide margin over Credit Suisse First Boston and Gold-
man, Sachs & Co., which place second and third, respectively. The hedge funds we polled say they prize client service above all else, followed by operations, reporting and
technology and securities lending. Morgan Stanley finishes
at or near the top in all of those categories.
When it comes to law firms, hedge funds care most
about the depth and breadth of experience related to their
business. Although Sidley Austin Brown & Wood scores
highest in that area and in quality of service, hedge fund
heavyweight Seward & Kissel edges out Sidley Austin for
the No. 1 spot by doing better in fees and brand image.
Both firms have a sizable margin over third-ranked law
firm Akin Gump Strauss Hauer & Feld.
Rothstein Kass is the leader among accounting firms.
Goldstein Golub Kessler places second in that category,
followed by Deloitte Touche Tohmatsu. The managers we
surveyed rate International Fund Services, which is owned
by financial services giant State Street Corp., as the top
fund administrator, followed by Goldman Sachs and Citco Fund Services. IFS administers about $120 billion in
hedge fund assets, less than half the level of assets serviced
by New York–based Citco, the world’s biggest hedge fund
administrator.
As the hedge fund industry grows, managers are adapting their organizations and their investments to appeal to
the pension funds and other institutional investors driving
ALPHA AWARDS™
Top Administrators
Rank Firm
1
International Fund Services
2
Goldman, Sachs & Co.
3
Citco Fund Services
4
Bisys Alternative Investment Services
5
HSBC Alternative Fund Services
International Fund Services
Gary Enos, 48, Head of Alternative Investment
Services, State Street Corp.
In 2002, International Fund Services was a premier and
feisty administration firm providing fund valuations and
other services on $35 billion of hedge fund assets. Then in
July of that year, financial services giant State Street Corp.
announced it was buying the New York–based firm as part
of a push into this burgeoning area. IFS has since almost
doubled its employees, from 500 to 950. Gary Enos, the 20year State Street veteran who helped engineer the deal,
says IFS’s assets have more than tripled, to $120 billion, as
the firm caters to the needs of clients of all sizes and levels
of sophistication, including funds of hedge funds. “IFS
impresses us with their ability to answer any and all
questions in a timely manner,” says one manager. — N.M.
Photo by Tracy Powell for Alpha
the market. “Institutional money is stickier,” says Morgan
Stanley’s Portogallo. “That tends to be better for the manager over the long term, but institutional investors demand
more due diligence, ask more questions and want more
details about the allocation of their capital.”
Managers who want to attract institutional money
need to be willing to provide greater transparency, reporting, portfolio risk analytics and operational controls.
“Institutional investors can afford to tolerate more modest returns than can high-net-worth investors,” says Reiko
Isaac, CEO and founder of Amber Partners, a Bermudabased firm providing operational risk due-diligence services to hedge fund managers and investors. “But one
thing they cannot afford is to invest in a hedge fund that
blows up for noninvestment reasons.”
No investor wants to get caught holding the next Bayou
Management. According to a complaint filed by the U.S.
Attorney for the Southern District of New York, the Stamford, Connecticut–based Bayou allegedly set up a phony
accounting firm to audit its financial statements as part of a
plan to hide investment losses and induce investors to put
“No one wants
to be the service
provider for the
next failed hedge
fund,” says Gary
Enos, head of
alternative
investment
services, State
Street.
Alpha Awards Top Service Providers
more than $300 million in Bayou’s funds.
Many managers are being proactive, asking their auditors to conduct reviews of their funds’ internal accounting
controls to satisfy institutional investors, says Howard Altman, a co–managing principal in charge of the hedge fund
practice at Rothstein Kass in Roseland, New Jersey. “In
some cases hedge funds may also want to be prepared to sell
their business to an institution,” he adds. “They want to
have everything in their house in order for that eventuality.”
The biggest hedge fund firms have become institutions
in their own right, with sprawling infrastructures. Five years
ago only 32 hedge funds had $1 billion or more in assets,
according to Hedge Fund Research. Today more than 200
do. Even more startling is the percentage of total hedge
fund assets those funds control — more than 51 percent at
the end of 2004, up from 12 percent in 2000.
AS HEDGE FUNDS INCREASE IN SIZE, they are
catering to the demands of their larger investors. “Institutional investors often require a detailed breakdown of the
causes of performance,” says Ron Suber, manager of global clearing sales at Bear, Stearns & Co. in New York. “And
because they want it, prime brokers need to deliver it.”
Bear Stearns ranks No. 4 among prime brokers in overall
quality of service.
Hedge funds are strengthening their daily operations.
“We see leading clients looking increasingly institutional
— more like businesses that happen to be hedge funds than
a group of traders,” says Philip Vasan, New York–based
global head of prime services at CSFB.
David Swain, chief financial officer at CQS, a $5 billion London-based hedge fund manager specializing in
convertible and capital-structure arbitrage strategies, says
that many large hedge funds like his have decided to bring
more operations in-house to support their activities as
they grow. But he also points out that different strategies
have different service requirements. “A long-short equity
fund can rely on one or two prime brokers and its administrator to handle billions of dollars under management,”
says Swain. “If a hedge fund has a more fixed-income or
structured bias, it needs more.”
As hedge funds head into new markets and strategies, the
firms that service them have more ways to differentiate themselves. With more hedge funds venturing into private equity,
for example, brokers “must be able to finance assets that
range from straight equities to receivables on a securitized
note for a nonpublic security,” says Jon Hitchon, Deutsche
Bank’s London-based head of global prime services. Voters
rate Deutsche Bank the top prime broker for financing.
Prime brokers are the service providers with the most
intimate relationships with their hedge fund clients. Financing and securities lending remain the most lucrative
areas of their business, but competition has reduced margins and made growth in volume more important, forcing prime brokers to spend more money on automation
and technology. They are also integrating their services
across geographies and across equities and fixed income
to respond more effectively to clients whose strategies are
not straitjacketed by traditional asset-class boundaries.
What’s at stake is critical. Last year investment banks
reeled in $25 billion from hedge funds, more than one
eighth of total banking revenues, according to CSFB bank
analyst Marc Rubinstein in London. About $19 billion of
that came from sales and trading and $6 billion from
prime brokerage. The importance of hedge fund business
across bank divisions means that investment banks are
pulling out all the stops to service these clients. “We look
at our overall firm footprint with the hedge fund in prioritizing our highest-touch clients,” says CSFB’s Vasan.
The broad-gauge changes in the industry have made
hedge fund size increasingly important, even for start-ups.
As a result, it doesn’t pay for new fund managers to pinch
pennies when picking service providers. What’s critical is
getting a fund launched successfully, attracting appropriate
investors and performing well. “The manager is making a
huge entrepreneurial leap, and it’s a moment of intense personal and professional vulnerability,” says Alex Ehrlich,
global head of prime brokerage at fifth-ranked UBS in New
York. “He is trying to do what will give him the greatest
sense of comfort that they will be successful.”
The skew toward larger hedge funds across the industry
means that smaller hedge funds have a steeper hill to climb.
“There is a growing division between the haves and have-
ALPHA AWARDS™
Top Accounting Firms
Rank Firm
1
Rothstein Kass
2
Goldstein Golub Kessler
3
Deloitte Touche Tohmatsu
4
KPMG
5
PricewaterhouseCoopers
Rothstein Kass
Howard Altman, 54, Co–Managing Principal,
Hedge Fund Practice
When it comes to serving hedge funds, the Big Four
accounting firms could take a page from the playbook of
their much smaller rival Rothstein Kass, in Roseland, New
Jersey. The firm outpaces its competitors in hedge funds’
opinion of its expertise, responsiveness, auditing,
compliance and tax work. “They keep us on the right side
of the issues,” one hedge fund manager says of the firm,
which was founded in 1959. The hedge fund practice is
run by co–managing principal Howard Altman, who has
been with the firm 27 years. His group works with 1,500
hedge funds. As hedge funds come under greater investor
and regulatory scrutiny, Altman expects demand for his
— N.M.
firm’s services only to increase.
nots,” says Deutsche Bank’s Hitchon.
Funds of hedge funds are actively fueling this
trend. Five or six years ago, a fund of funds with
$500 million was considered large. Now many
fund-of-funds firms have several times that and
prefer to allocate money in chunks of $25 million or more. A hedge fund with $100 million
in assets can’t command as much attention as it
once could. “That’s changed the game in terms
of what is viewed as attractive to big investors,”
says Seward & Kissel attorney Tavss.
This shift in orientation benefits hedge fund
service providers. Institutional investors, for
example, want to see hedge funds put in place
basic controls like independent net-asset-value
calculations and independent valuations of securities. “They’re used to the infrastructure and
oversight responsibilities of a pension plan,” says
Gary Enos, head of State Street’s alternative
investment servicing group, which includes IFS.
Full-service fund administrators are consequently gaining new clients as onshore hedge
funds, which traditionally have performed their
own fund accounting and portfolio valuation,
outsource those jobs. Fund administrators are
also able to charge higher fees for the valuation of
illiquid and hard-to-price securities, as the cost of
servicing specialized funds is rising.
And even the bigger hedge fund complexes
are making greater demands in the investor relations area. “We expect more from our administrator in how they manage the information they
give us and how they service the shareholders of
the fund,” says Martin Pabari, head of product
control at CQS. Pabari is responsible for ensuring the accurate reporting of his firm’s trading
profit and loss statements.
Institutional investors aren’t the only ones
concerned with the risks associated with a hedge fund going
belly up. “Five years ago, when a hedge fund was often just
a manager and ten sophisticated, high-net-worth investors,
the headline risk wasn’t as important,” says State Street’s
Enos. “When you have boards and shareholders to protect,
the diligence you do changes. No one wants to be the service provider for the next failed hedge fund.”
The fund administration business has consolidated in
recent years as the need for scale has become more important.
Administrators have also found that servicing their hedge fund
clients’ basic needs can be a conduit to new business.
“It’s a relationship-driven business,” says Robert Schultz,
head of alternative fund services for North America at
HSBC Holdings, the second-biggest hedge fund adminis-
trator. “You’re able to cross-sell more banking products to
those clients, so it’s a good way to increase the share of revenue from a client.” Schultz is the former president and
CEO of Bank of Bermuda in New York, which HSBC
bought last year.
As service providers vie for clients, they are not being held
back by their traditional boundaries. Fortis, a Brussels-based
bank that bought Dutch private bank and trust and administrative services firm MeesPierson in 1997, has been providing
credit to funds of funds for seven years. “Everyone wants to
keep clients under the same roof — it creates access to hedge
funds and consolidates relationships,” notes Lisa Welden,
director of business development at Fortis Prime Fund Solutions (USA) in New York. “If we get financing business from
Please visit www.institutionalinvestor.com/AlphaAwards for a more detailed look at the Alpha Awards for hedge
fund service providers. There you will find a more extensive ranking of the top firms in all of the
categories as well as a ranking of how members of the Hedge Fund 100 view their prime brokers, the
importance our respondents attach to each attribute of service and a detailed statement of our methodology.
Photo by Juliana Thomas for Alpha
“Hedge funds
may want to be
prepared to sell
their business
to an institution,”
says Howard
Altman,
co–managing
principal,
Rothstein Kass.
Alpha Awards Top Service Providers
alternative investment practice at PricewaterhouseCoopers,
points out that investment advisers with long-short equity
funds and other strategies that are relatively easy to administer and audit could pay $70,000 to $100,000 to register
and set up a comprehensive compliance program. For the
largest hedge funds, the cost could range from $500,000 to
$1 million or more, depending on the fund’s structure and
the complexity of the products and strategies it uses.
Many hedge fund managers gearing up for registration are testing the waters with mock audits that simulate
the real exams carried out periodically by SEC inspectors.
Law and accounting firms and consultants conduct these
exams on-site at the hedge fund. A mock exam can last a
few days or a full month and cost $40,000 to $150,000
or more, depending on the size and complexity of the
hedge fund, says Zornada.
Hedge fund compliance needs will continue after the
registration deadline, as funds begin facing real SEC
audits. The SEC’s requirement that registered investment
advisers conduct annual reviews of their compliance programs also guarantees that hedge funds will continue to
turn to attorneys, accountants and other vendors to help
them with periodic evaluations.
Artabane of PricewaterhouseCoopers suggests that
another area likely to draw attention in coming years is
ALPHA AWARDS™
Top Law Firms
Rank Firm
1
Seward & Kissel
“If a hedge fund
complex has
multiple funds
with differing
strategies, the
amount of
work quickly
multiplies,” says
John Tavss,
partner, Seward
& Kissell.
a fund-of-funds client we administer, we’re more comfortable
making loans to them, and we may not need to charge them
high minimum fees for custody services.”
Hedge fund registration is a fresh summons for a range of
services from lawyers, accountants and administrators. U.S.based hedge funds are turning to their outside legal counsel
for help in registering and drafting written compliance procedures and codes of ethics. Documentation isn’t likely to be
the biggest registration-related expense, however.
“The cost is not just getting some papers drafted by
lawyers,” says George Zornada, a partner in the investment
management and securities law practice at law firm Kirkpatrick & Lockhart Nicholson Graham in Boston. “It’s instituting the whole compliance infrastructure. That’s expensive,
and that’s a new world for many hedge fund operators.”
The required infrastructure covers a lot of territory. A
registered investment adviser must have a chief compliance
officer, although that person doesn’t have to be an attorney
or accountant. Meeting other compliance obligations could
run the gamut from purchasing new recordkeeping systems
to establishing formal assessments of the quality of broker
executions and valuation procedures for illiquid securities.
Anthony Artabane in New York, who leads the global
2
Sidley Austin Brown & Wood
3
Akin Gump Strauss Hauer & Feld
4
Schulte Roth & Zabel
5
Maples and Calder
Seward & Kissel
John Tavss, 51, Head of
Alternative Investment Practice
New York–based Seward & Kissel has been serving hedge
funds since Harry Truman was president. The firm, which
helped Alfred Winslow Jones set up the first hedge fund
partnership in 1949, today represents more than 200
hedge fund firms. John Tavss, who started at Seward
& Kissel in 1979 doing tax work, heads up the alternative
investment practice, which has more than 30 attorneys,
including six partners. Hedge fund managers praise the
group’s ability to “deliver an opinion quickly” and say that
their “advice is always practical.” Seward & Kissel’s
lawyers get involved in many of the day-to-day issues that
arise for their clients, such as registration and compliance,
employment contracts, compensation and the legal
— N.M.
structure and terms for new funds.
Photo by Juliana Thomas for Alpha
Alpha Awards Top Service Providers
hedge fund corporate governance. With institutional investors and regulators demanding more transparency, hedge
funds currently organized as partnerships could come under pressure to have boards of directors and rethink their
compensation structures. “Hedge funds may have to hold
themselves to a higher standard,” says Artabane.
Accountants, lawyers and other service providers will
undoubtedly be standing in line, ready to help them do it.
ALPHA AWARDS™: The Top Firms by Aspect of Service
Here is a list of the accounting firms, administrators, law firms and prime brokers that scored highest on various aspects of service, as rated by the hedge fund managers that use them.
Accounting Firms
Rank
1
2
3
Rank
1
2
3
Rank
1
2
3
Rank
1
2
3
Rank
1
2
3
Rank
1
2
3
Rank
Audit
Rothstein Kass
Deloitte Touche Tohmatsu
PricewaterhouseCoopers
Fees
Rothstein Kass
KPMG
Goldstein Golub Kessler
Hedge fund expertise
Rothstein Kass
Goldstein Golub Kessler
Ernst & Young
Regulatory compliance
Rank
1
2
3
Rank
1
2
3
Rank
1
2
Fund accounting
Prime Brokers
International Fund Services
Goldman, Sachs & Co.
Citco Fund Services
Rank
Middle-office services
International Fund Services
Citco Fund Services
Bisys Alternative Investment Services
Transfer agency
International Fund Services
Goldman, Sachs & Co.
Citco Fund Services
Treasury and credit products
Citco Fund Services
HSBC Alternative Fund Services
Rothstein Kass
KPMG
Deloitte Touche Tohmatsu
Law Firms
Responsiveness & quality of personnel
Rank
Rothstein Kass
Goldstein Golub Kessler
Deloitte Touche Tohmatsu
Tax
1
2
3
Rank
Rothstein Kass
Deloitte Touche Tohmatsu
KPMG
1
2
3
Rank
Administrators
Rank
1
2
3
Client services
1
2
International Fund Services
Goldman, Sachs & Co.
3
Citco Fund Services
1
2
3
Rank
1
2
3
Rank
1
2
3
1
2
3
Rank
Fees
Seward & Kissel
Sidley Austin Brown & Wood
Akin Gump Strauss Hauer & Feld
Hedge fund expertise
Sidley Austin Brown & Wood
Seward & Kissel
3
Schulte Roth & Zabel
1
2
3
Rank
Rank
Brand image
Schulte Roth & Zabel
Seward & Kissel
Sidley Austin Brown & Wood
1
2
Rank
1
2
3
Quality of service
Sidley Austin Brown & Wood
Seward & Kissel
Akin Gump Strauss Hauer & Feld
1
2
3
Rank
Business consulting
Morgan Stanley
Credit Suisse First Boston
Goldman, Sachs & Co.
Capital introduction
Morgan Stanley
Deutsche Bank
Credit Suisse First Boston
Client services
Morgan Stanley
Credit Suisse First Boston
UBS
Financing
Deutsche Bank
Bear, Stearns & Co.
Morgan Stanley
Operations
Banc of America Securities
Morgan Stanley
Credit Suisse First Boston
Reporting & technology
Morgan Stanley
Banc of America Securities
Goldman, Sachs & Co.
Securities lending
1
2
Morgan Stanley
Bear, Stearns & Co.
3
UBS
Rank
1
2
3
Trade execution
Credit Suisse First Boston
Morgan Stanley
Bear, Stearns & Co.
Compiling the Ranking
e compiled our inaugural Alpha Awards ranking of the top hedge fund service providers based on voting in the summer of 2005 by representatives
from more than 600 hedge fund management firms. Of these firms, 550 run singlemanager funds and almost 100 manage funds of hedge funds. More than half the
firms in the 2005 Hedge Fund 100, Alpha’s annual ranking of the largest singlemanager hedge funds, participated in the survey.
We asked hedge funds to rate the quality of service they received for the 12
months ended May 31, 2005, from the accounting firms, administrators, law firms
and prime brokers they used during that period. For each type of provider, service quality was broken down into broad attributes, each of which included a
series of specific points of service. Respondents also rated the importance of
each service attribute, the result of which was then used to calculate the overall winner in each of the four major categories, rewarding firms that do well in
W
the tasks hedge funds prize most.
In the accompanying tables we rank only those service providers for which
we received a minimum number of responses. Only responses from singlemanager hedge fund firms were considered in the prime broker ranking;
responses from both single-manager and fund-of-funds firms were included in
the accounting firm, administrator and law firm rankings. For a more detailed
description of our methodology as well as a more complete ranking of firms rated
in each of the four overall groups and 23 categories, please visit the Alpha Awards
Web site, www.institutionalinvestor.com/AlphaAwards.
Alpha’s hedge fund service provider survey was conducted under the direction of Director of Research Operations Sathya Rajavelu, Assistant Managing Editor for Technology and Development Lewis Knox and Senior Editor Jane B.
Kenney, with assistance from Associate Editor Michele Bickford.
Posted with permission from the September/October 2005 issue of Alpha. Copyright Institutional Investor 2005. All rights reserved.
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