“Next stop, one trillion!” That was the message from Jonathan Cossey, JP Morgan’s global head of prime finance and GC’s latest inductee into its Hall of Fame, when the US bank surpassed $500 billion in prime brokerage balances for the first time last year – an increase of 25% after having already achieved near record-levels across both its cash and synthetics prime business.
That kind of bullish attitude has been key to JP Morgan’s goal of breaking the duopoly of Goldman Sachs and Morgan Stanley in the prime brokerage market. In the first half of 2020, the three US investment banks roughly held a market share of over a third According to figures collected by Preqin, JP Morgan currently services around 2,250 hedge fund clients, roughly 14% of the market, and nearly double that of its closest rival Credit Suisse.
“Our book is as diversified as it’s ever been. We continue to gain market share with existing clients, onboard new managers, have made a noticeable splash in the start-up space and our future remains bright with a strong pipeline of new business,” said Cossey in an internal memo at the time.
Cossey joined JP Morgan in 2011, having spent over 15 years at Nomura in a number of senior prime brokerage roles, including global head of equity finance. With the US bank, Cossey has served as global head of equity finance and head of the EMEA prime brokerage, before becoming global head in 2016.
Over the years, one of Cossey’s main objectives for the business has been to increase JP Morgan’s investment in its electronic trading services to hedge funds, specifically its Delta One synthetic business, which provides leveraged exposure to securities or a basket of securities through derivatives.
Synthetic prime brokerage has been viewed as a more attractive option for hedge funds because it can help reduce capital and transaction costs through netting. It has become the service of choice for managers running alternative strategies on a large sample of assets, such as long/short (absolute return) funds.
Synthetic prime services include providing clients with access to total return swaps on single stocks, equity baskets and indexes; however, they cannot take up short positions for regulatory reasons.
According to the bank’s Investor Day presentation last year, the synthetics business accounted for nearly half of its global prime finance revenues in 2018 and had helped it leapfrog Goldman Sachs in the industry monitor Coalition’s prime brokerage revenue rankings to second place.
The global coronavirus pandemic also proved to be a key test for Cossey and his team to provide stability of financing, clear margin terms, and an unbroken level of services at a time of increased volatility.
“During these volatile times, we provided clarity about margin calls and how clients were going to meet them. We quickly worked though some operational obstacles pertaining to the infrastructure of the hedge fund community when there were meaningful margin calls to be met,” Cossey told Global Custodian earlier this year.
Cossey added that the pandemic has not slowed the bank’s ambitions to continue competing head-on with its rivals, as it looks to utilise digital and virtual technologies to win new mandates.
“We remain focused on delivering value and scale, with a client acquisition mindset and continuing to expand our client footprint. Our strategy hasn’t changed during this time, and we have either kept market share or grown it. There have been some mandates won entirely virtually, carried out by our sales and relationship management team through Zoom or Microsoft. It has been a surprise the pipeline has been so strong,” said Cossey.