Vodia Group has released a new report profiling opportunities and challenges for asset managers, brokers and custodians in 130/30 strategies.
This study draws on data from our recent survey of institutional investors, conversations with brokers and asset managers, and our ongoing collection of pricing and trend data in the prime brokerage and custody markets.
Highlights from this report include: Brokers and custodians stand to earn $1.26 in annual revenues from 130/30 strategies by 2012; 130/30 is eroding boundaries in asset management, brokerage and custody. Asset managers are moving towards hedge funds in pricing, while brokers and custodians are converging in offering both custody and financing to 130/30 funds; Brokers have made substantial marketing inroads with institutional investors – 44% of institutions say that they would custody their planned 130/30 investments with a prime broker.
130/30 strategies have had a disruptive effect on the securities marketplace, and not just by creating a potentially new asset class for investment. In asset management, 130/30 is speeding up the already blurring distinctions between traditional long-only asset managers and long/short hedge funds. In custody and brokerage, financing the long and short pieces of 130/30 offers $1.26 billion in potential new revenues but also creates direct competition between formerly compatible service providers.
For all the hype of 130/30, institutional and retail investors are just beginning to test the waters for allocating funds. A recent Vodia Group survey found that 14% of institutional investors said that they had already invested in 130/30. Asset managers, brokers and custodians have already responded to the major obstacle of educating the board; only time will resolve the other major consideration, can 130/30 strategies generate additional alpha for their associated costs. 130/30 has opened up serious questions in the division of business between brokers and custodians.
While there have been disagreements between brokers looking to partner with custodians and custodians choosing to support their internal financing activities, this has not caused any long term damage to institutional relations.
The opportunity is too new to have generated enough revenues at stake. Now however, institutional investors are beginning to lean towards brokers for their 130/30 servicing needs. However, It is unlikely that custodians will respond quietly to the challenge.