The majority of asset managers trade through a shrinking pool of brokerage firms, but the trend may be bottoming out, according to analysts at research firm TABB Group.
Thirteen brokerage firms received 72% of institutional order flow as of early September, down from the 15 major firms that handled 64% of that flow two years ago, before the credit crisis emerged, according to Laurie Berke, TABB senior analyst and author of the report, “U.S. Institutional Equity Trading: Crisis, Crossing and Competition.”
“A fiercely competitive environment will emerge in 2009 in this new deleveraging environment. Because so many assets have flown out of hedge funds, the bulge bracket firms will compete for the equity assets left,” Ms. Berke said in an interview, adding that some agency brokers will join the fray, further boosting competition.
But Ms. Berke expected that second-tier brokerage firms will start to fill the void left by the exit of some major Wall Street firms.
TABB’s latest research is based on interviews conducted this summer with 61 head traders at traditional long-only institutional asset management firms representing a combined $12.9 trillion in assets under management.
