New TABB Group Research Details Market Share Drivers for Next Phase of the Post-Lehman Evolution of Prime Brokerage

Forecasts Brokers` Revenues to Top $10 Billion in 2010 with Hedge Funds` Assets
under Management at $1.5 Trillion

TABB Says Funds, Scarred by Prime Brokerage Shakeup, Reassessed Relationships
and are Better Prepared to Handle another Crisis
NEW YORK & LONDON--(Business Wire)--
It`s a year after the hellish nightmare of the Lehman Brothers implosion when
billions of hedge fund assets were frozen and prime brokerage relationships were
forever changed. Yet, after setting off a fury of account openings, due
diligence projects and technology updates, the steps many hedge funds are now
taking are more evolutionary than revolutionary.

According to TABB Group in part one of annual benchmark industry research on the
US hedge fund industry, "Prime Brokerage 2009: The Hedge Fund Perspective," the
shocks of September 2008 set in motion a re-evaluation of existing
relationships; the development of new prime relationships; the development of
true multi-prime capabilities; new custodial arrangements with prime brokers and
non-prime broker affiliated custodian banks. Only a full year later is this
industry beginning to settle down and the pace of change and instability finally
slowing.

While starting to recover, the hedge fund industry remains at a crossroads.
Nearly 80% of hedge funds have the same or fewer assets under management (AuM),
leverage is down, investors are queasy and legislators are angry. As a result,
the prime brokerage industry is equally challenged. While AuM is still down from
all-time highs, significant net inflows and performance-related asset increases
are well on their way.

TABB Group sees the prime brokerage market as still significant and expects
prime broker revenues to top $10 billion in 2010 with hedge funds` AuM totaling
$1.5 trillion, strikingly similar to 2007 levels.

The crisis of confidence in the banking sector had a sharp impact on hedge fund
attitudes toward prime brokerage, explains co-author and TABB Group analyst Matt
Simon. "When Lehman Brothers collapsed, funds scrambled for new relationships
that would reduce the fear of waking up to a zombie provider. Even hedge funds
less concerned about the imminent collapse of their prime brokers felt it was a
good opportunity to reassess existing relationships." Before the collapse, he
adds, over 30% of the funds had a prime relationship with Lehman or Bear
Stearns. As a result, over the past year, 45% of the funds added at least one
new prime broker agreement. JP Morgan, Credit Suisse, Deutsche Bank and
Jefferies were most frequently cited as gaining relationships.

Although there are operational challenges involved, the reassessment of existing
relationships is underway as 66% of the single-primed hedge funds are
considering multi-prime broker relationships, allowing for quick movement of
assets between brokers by year`s end 2010. TABB also sees the rise of mini
primes, garnering an estimated 10% of new prime agreements, driven by the need
for increased service levels. The new study also examines issues around the
soundness and safety of assets as funds increasingly are examining the
differentiation of prime brokerage versus traditional custody and tri-party
arrangements.

Although a hedge fund`s initial implementation of a more diversified prime
brokerage model is likely to negatively impact the primary provider, the greater
impact on long-term market share will be determined by whether or not asset
growth comes from existing funds, many of whom will keep the majority of assets
with longstanding relationship, or new fund launches, concludes co-author and
TABB Group`s head of research, Adam Sussman. "If a new crop of hedge fund
managers is going to be responsible for a renewal of industry assets, it could
very well be the smaller prime brokers that gain in market share. Then, the
challenge will be to hold onto those relationships as today`s Davids become
tomorrow`s Goliaths."

This TABB Group interview-based study is based on interviews with 62 US-based
hedge funds and supplemented by discussions with prime brokers and directors at
leading global investment banks,

The hedge funds interviewed by TABB have a combined US $127 billion in AuM,
representing approximately 10% of total US-based hedge fund assets.

The 45-page study with 40 exhibits provides an in-depth analysis of hedge
fund/prime brokerage relationships, including: new drivers of market share; top
five executing brokers (2008-2009); current providers and the selection process;
prime brokerage operations; strengths of prime brokers; new
solutions/improvements wanted from prime brokers; challenges of having multiple
prime brokers; new prime relationships within the last 12 months; technology
used to reconcile and aggregate data; percentage of assets loaned out; the rise
of mini primes, custody and the safety of funds` assets and the impact of the
volatile market environment over the past year.

The study is available for download by TABB Group Equity Research Alliance
clients and all pre-qualified media at https://www.tabbgroup.com/Login.aspx. For
an executive summary or to purchase the report, visit http://www.tabbgroup.com
or write to info@tabbgroup.com.

About TABB Group

TABB Group is the financial markets industry`s only research and strategic
advisory firm focused exclusively on capital markets, with offices in New York
and London. Founded in 2003 and based on the proven interview-based research
methodology of "first-person knowledge" developed by founder Larry Tabb, TABB
Group analyzes and quantifies the investing value chain from the fiduciary,
investment manager and broker, to exchange and custodian, helping senior
business leaders gain a truer understanding of financial markets issues. For
more information, visit www.tabbgroup.com.

martinrabkinink
Martin Rabkin, 914-420-5739
mrabkin@martinrabkinink.com

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