Institutional investors — especially pension fund executives — have been slow to RSVP for the parties and meetings prime brokers are throwing just to introduce them to hedge fund managers.
In fact, Morgan Stanley's conference at the ultra-luxe Breakers resort in Florida in late January was dominated by institutional attendees — insurers, endowments, foundations, investment consultants and fund of funds companies that perform proxy duty for many pension hedge fund investors, said David Barrett, managing director and head of capital introduction at Morgan Stanley, New York. But few pension sponsors attended, and that was not for lack of an invitation.
On one hand, there are just too many players in the capital introduction area.
The practice of putting qualified investors in the same room as hedge fund managers so one side can attract the assets of the other is fairly new. Morgan Stanley — widely considered to share the top spot in hedge fund capital introduction services with Goldman Sachs & Co., New York — has offered the service for only seven years, Mr. Barrett said.
In the ensuing years, prime brokerage units of many financial services companies jumped into the business. The attraction: The broker gets revenue from hedge fund clients directing trades or using the firm's derivative products. As hedge fund clients' assets grow, so do their transaction volumes and the prime brokers' revenues.
On the other hand, with so many capital introduction players and a spike in the number of new hedge funds, institutional investors and their gatekeepers said the overall quality and usefulness of capital introduction events is extremely uneven.