Hedge fund trading volumes in European fixed income doubled in 2006 as hedge fund managers sought to diversify their sources of financing and securities lending services in support of their growing businesses, says Greenwich Associates 2006 European Fixed-Income Report.
The two-fold increase in fixed-income trading volume among hedge funds active in Europe spanned all cash bond and derivatives products. In government bonds, emerging markets, and interest-rate derivatives, hedge fund trading volumes tripled or more, while trading volumes in total credit derivatives and structured credit derivatives doubled.
A new white paper, based on this annual research program, analyses the growing presence of hedge funds in European fixed-income markets. In particular, the paper examines efforts on the part of hedge fund managers to diversify their sources of the financing and securities lending services needed to support their aggressive strategies.
“There is no debating that hedge funds receive top quality service from prime brokers and other financial service firms, and, thanks to the sell-side’s infatuation with these lucrative clients, hedge funds in general have no shortage of sources for liquidity,” says Andrew Awad, a consultant at Greenwich Associates. “Even with banks fighting vigorously to win this business however, several developments over the past 12 months have injected a new element of reality into their relationships with hedge funds.”
“Our research does not suggest that liquidity is drying up for hedge funds in Europe,” adds Peter D’Amario, a consultant at Greenwich Associates. “Quite the contrary, most managers are besieged by banks hoping for a piece of this business. But our research does suggest that – in certain spots – liquidity has become more expensive or less abundant for brief periods. In response to these bumps, hedge funds appear to be taking preemptive measures to preserve critical resources.”