BNY Mellon's Pershing Unit Releases New Independent Study Focusing on the Evolving Competitive Landscape for Hedge Funds

JERSEY CITY, N.J., Nov. 9 /PRNewswire-FirstCall/ -- Pershing LLC, a BNY Mellon company, and Finadium LLC, have published a new independent study that examines the continued emergence of investment managers in the equity long and short marketplace and their convergence with hedge funds.

The report entitled, Competition and Convergence: The Evolving Landscape for Hedge Funds is available through Pershing Prime Services and BNY Mellon Alternative Investment Services. The study indicates that while investment managers have relatively few assets in equity long and short investment portfolios, this segment of the market continues to grow rapidly as firms seek to diversify their business lines and compete with hedge funds. This new competition for assets has pushed some hedge funds into long-only investment strategies and others towards retail distribution. The report suggests that investment managers will become more important to hedge funds as potential partners in product offerings and mergers and acquisitions. Key findings from the study include:

• Growth of Equity Long and Short Investment Strategies Among Investment Managers Expected to Increase - Investment managers' control of equity long and short investment portfolios is expected to rise from $204 billion to $345 billion by 2012 representing an increase from 19% to 28% of today's $694 billion marketplace. According to a recent Finadium survey, 65% of investment managers now operate some sort of long and short fund, up from 33% one year ago. Independent hedge funds are also expected to continue to grow and increase their equity long and short portfolios to $810 billion by 2012 as equity markets recover;
• Potential Regulatory Reform Remains a Wild Card - Investment managers view potential regulatory reform as a wild card in driving convergence between themselves and hedge funds. The report indicates that some investment managers advocate working more closely with hedge funds as sub-advisors and potential acquisition targets with the expectation that increased regulation will occur. Without specific regulation, hedge funds will continue to have few legal obligations to disclose fees and practices;
• Hedge Funds Continue to Benefit from Strong Prime Brokerage Relationships - Investment managers have notably different servicing needs than their hedge fund competitors. These organizational requirements have created challenges for investment managers looking to do business with noncustodian prime brokers, to the benefit of hedge funds with strong prime brokerage relationships. While investment managers are becoming more agile in their technology and operations, no party has surmounted the funding obstacles that regulatory and market pressures have put in place; and
• Tri-Party Custodial Relationships May Offer Hedge Funds an Edge - Hedge funds have a wide range of opportunities and challenges to take into consideration when evaluating the strategies of investment managers in the long and short arena. For example, hedge funds should consider tri-party custodial relationships which bring many traits of the asset management industry into their domain. These arrangements allow hedge funds to mitigate their counterparty risk by custodying cash and fully paid for securities with a less leveraged bank custodian, while prime brokerages still hold the fund's short positions and provide margin financing.
  

Craig Messinger, managing director of Pershing Prime Services, said, "As investment managers increasingly expand into the equity long and short marketplace, hedge fund managers need to provide their investors with a distinct value proposition that uniquely positions them in the marketplace. Exploring new investment strategies, embracing potential merger and acquisition opportunities and offering clients innovative separately managed account solutions are several tactics hedge funds should consider to help continue growing their businesses."

Josh Galper, managing principal of Finadium LLC, said, "The growth of long and short mutual funds provides hedge fund managers with an exceptional opportunity to reach a new investor base with a relatively easy-to-understand, high-value offering. We expect long and short mutual funds to be an important asset gathering investment solution that will continue to help investors and fund managers achieve their financial objectives."

Pershing Prime Services delivers an unconflicted, comprehensive suite of global prime brokerage solutions, including extensive access to securities lending, dedicated client service, robust technology and reporting tools, worldwide execution and order management capabilities, a broad array of cash management products and the integrated platform of BNY Mellon. Pershing Prime Services is a service of Pershing LLC. A copy of Pershing's new whitepaper and additional information about Pershing Prime Services' capabilities and solutions can be found by visiting www.pershingprimeservices.com.

Pershing's parent company, BNY Mellon, also provides a wide range of administration services to hedge funds, funds of hedge funds and private equity assets through BNY Mellon Alternative Investment Services, one of the world's leading providers in this market segment with more than $200 billion in hedge fund assets under administration. In addition to hedge fund administration, BNY Mellon offers a wide range of accounting, cash management, collateral management, custody, asset management and wealth management services to the hedge fund industry.

Pershing LLC (member FINRA/NYSE/SIPC) is a leading global provider of financial business solutions to more than 1,150 institutional and retail financial organizations and independent registered investment advisors who collectively represent approximately five million active investors. Located in 20 offices worldwide, Pershing and its affiliates are committed to delivering dependable operational support, robust trading services, flexible technology, an expansive array of investment solutions, practice management support and service excellence. Pershing is a member of every major U.S. securities exchange and its international affiliates are members of the Deutsche Borse, the Irish Stock Exchange and the London Stock Exchange. Pershing LLC is BNY Mellon company. Additional information is available at www.pershing.com.

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 34 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $22.1 trillion in assets under custody and administration and $966 billion in assets under management, services $11.9 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day. Additional information is available at www.bnymellon.com.