Fidelity Draws Prime Brokerage Clients

Fidelity Investments is grabbing lucrative prime brokerage accounts away from bulge-bracket banks whose capabilities and reputations have been pulled down by the credit crisis.

The Financial Times reports that Fidelity's prime brokerage operation added 20 percent more hedge fund clients and 40 percent more client assets in the past month, and expects to add 50 more clients in the next two to three weeks. About half the unit's 300 clients have $1 billion or more under management.

Fidelity is investing heavily to develop a global presence for the five-year old, heavily U.S.-based Fidelity Prime Services. "Having a high-quality international custody and trading capability is one of the top priorities for Fidelity's brokerage in 2008-09," Mark Haggerty, the head of Fidelity Capital Markets Services, which includes the prime brokerage unit, told the FT.

Lehman Brothers' bankruptcy filing stranded billions in client assets held by Lehman's prime brokerage unit on behalf of client heedge fund. That's prompting many funds to withdraw from banks that long dominated the prime broker business, to seek greater safety from both newer, niche players, and operations like Fidelity's that branched out from the mutual funds and retail brokerage business.

"A big driver is counterparty risk," Jim Coughlin, an executive at Fidelity Capital Markets Services, told the newspaper. "People are very nervous about that, and we offer a high level of security because we do not do any proprietary trading, we do not offer out our capital and we are also relatively conservative in terms of our leverage."