The hedge fund/prime broker connection may not be the marriage made in financial heaven once thought after all. A Euromoney survey reveals that the frenzy for hedge funds to hire multiple prime brokers has been driven by a desire to take advantage of their capital-introduction prowess - a role that, it turns out, the primies don’t value as much as hedge funds do because such a service doesn’t generate profits. The lovers’ spat has resulted in the percentage of hedge funds using multiple brokers dipping from 13% last year to about half that so far in 2006, according to a Tabb survey. About one in three HF managers polled by Euromoney listed capital introduction as the prime broker’s main weakness, and as a result, hedge funds are getting what they want by retaining third-party services or relying on their own sales forces. Tabb - which notes that 80% of hedge funds surveyed say they use only one or two prime brokers - said prime brokers complain that some hedge funds tend to be clueless about the difference between capital introduction and capital raising. One top exec at a prime broker told Euromoney that hedgies are just “irrational” in their approach, saying, “I’ve had managers come to me that have had returns of minus 20% and want to know why we aren’t introducing them to investors, as they desperately need money. Some don’t have track records at all. Capital introduction doesn’t work like that.”
