NEW YORK (HedgeWorld.com) - Hedge fund managers who've been complaining about the difficulty of borrowing securities now have another significant supplier, Merrill Lynch, which has become serious about using its various capabilities for prime brokerage customers including offering access to its immense reserve of securities.
"We're positioning prime brokerage as a portal to Merrill Lynch," said Howard Blechman, who heads the Merrill Lynch Global Prime Brokerage Group. "Through that gateway you can access all of the resources of the firm."
Unlike other big Wall Street players, in particular Goldman Sachs, Bear Stearns and Morgan Stanley, Merrill Lynch until recently did not make a major commitment to becoming a global prime brokerage provider. But now the firm has entered the field with broad new capabilities and a plan to use its formidable strengths to become established in the area.
Some of these resources, such as stocks for potential loans and capital-raising expertise, could indeed propel Merrill Lynch to the ranks of top prime brokers. But this is a very competitive field, and the bid for hedge fund business has been heating up. Offering core prime broker services like operational support and financing might not be enough, so the company has pulled together several components.
There is also an emphasis on quality. "We are providing a full service global prime brokerage business," said Mr. Blechman. "We have built the best team on the Street to do this." Merrill has combined talented people from within the firm with top-tier professionals from other Wall Street banks, he added.
Mr. Blechman himself came from Lehman Brothers, where he was the global co-head of equity finance and prime brokerage. Before that, he was at Morgan Stanley, where his responsibilities included helping supervise the development of a technical infrastructure and products for Morgan Stanley's prime brokerage operation.
Big Box
As part of its commitment to this business, Merrill Lynch created a comprehensive global technical platform, called ML Prime. Customers from Asia and Europe as well as the United States can access their prime brokerage account from anywhere, 24 hours a day. The platform provides analytical services and a follow-the-sun approach that gives portfolio managers wide access to markets worldwide.
While the online platform is new, some services that go with it rely on the company's traditional businesses. Between its mutual funds, asset management, retail brokerage and clearing operations, Merrill Lynch has an immense repository of shares. "We have a very large and stable box of securities and want to make that available to our clients" Mr. Blechman said.
"This is by far the largest stock loan capability on the Street, and it has been an undervalued resource in our organization," he explained. "Now we want to channel that resource to our customer base, to help them make money."
Merrill's ambitions in this arena are not limited to cash products, however. The prime brokerage business also can provide structured or derivative-based instruments to clients. In addition, the company's capital formation group offers capital introduction. Asked about this, Mr. Blechman replied: "Merrill Lynch has a lot more to offer in this area."
