Standard Bank Group, Africa\u2019s largest lender by assets, plans to start a prime brokerage next month to benefit from regulatory changes in South Africa it expects will boost the hedge-fund industry.<\/p>\n
The Johannesburg-based company anticipates having five hedge-fund clients by the end of the year, said Andy Hall, head of global markets at Standard Bank.<\/p>\n
The lender will compete against Peregrine Holdings and units of FirstRand, Deutsche Bank, Investec and Barclays Africa Group.<\/p>\n
\u201cThere\u2019s still a big bite to eat in the significant growth we expect in hedge funds,\u201d he said in an interview on Tuesday in Johannesburg. The lender is also being encouraged by guidelines recommending asset managers hire more than one prime broker, Hall said.<\/p>\n
The business forms a small but important part of Standard Bank\u2019s efforts to improve cost efficiencies and add clients within its global markets unit, which accounted for about 20 percent of the lender\u2019s earnings before one-time items in 2016.<\/p>\n
The global markets division oversees the company\u2019s trading activities on the continent in commodities, foreign exchange and credit, as well as structuring and exchange traded funds.<\/p>\n
Prime brokers typically conduct equity trades, cover margins and lend shares used in betting whether a stock price will fall or gain.<\/p>\n
Standard Bank is counting on using its estimated 60% share of the South African securities-lending market to bolster the prime brokerage even as lenders including Credit Suisse Group AG retreat from the business globally because of profitability concerns.<\/p>\n
Nedbank Group, a unit of London-based insurer Old Mutual, scrapped plans to start a prime brokerage in 2015 after efforts stalled and few clients signed up.<\/p>\n
\u2018Friendly clients\u2019<\/strong><\/p>\n South Africa\u2019s financial-services regulator in 2015 introduced rules that enhanced oversight and improved transparency for hedge funds, placing them in the same category as mutual funds. That has allowed the industry, which oversees about R70 billion ($5.3 billion), to compete for a wider investment pool that Cape Town-based Novare Investments estimates has R3 trillion in assets.<\/p>\n Hedge-fund assets have almost doubled since 2013, according to a 2016 survey by Novare.<\/p>\n Standard Bank has been testing the service with \u201cfriendly clients\u201d for the past few months after hiring two new executives to lead it, Andrew Cairns and Francois Henrion, who was previously at Barclays Africa\u2019s prime-services unit. The business plugged into the global market team\u2019s existing infrastructure that also does derivatives clearance, research, custodian business and broking execution, Hall said.<\/p>\n The unit will focus on the domestic hedge fund market with predominantly South African holdings, Henrion said in the same interview, declining to name any clients. Standard Bank is in talks with several hedge fund startups and well-established funds to secure business, he said. The bank\u2019s stock has climbed 9.2 percent this year, the biggest gain in the six-member FTSE\/JSE Africa Banks Index after Capitec Bank Holdings.<\/p>\n \u201cWe don\u2019t expect it to move the dial on revenue, but it\u2019s a fundamental step toward reaching efficiency goals,\u201d Henrion said.<\/p>\n \u201cWe\u2019re comfortable to partner with smaller funds to take them to the next level.\u201d<\/p>\n
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