What's your outlook for the global hedge fund industry given the recent lacklustre performance?

Galietto: We believe hedge fund assets will experience high rates of growth globally, with Asia over-weighted in that judgement. What we're seeing now is a secular shift towards alternative investments. The concept of using leverage and hedging to generate constant absolute returns is here to stay. Investors have understood the power of compounding and a wave of confidence is building among institutions, which are becoming increasingly familiar with investing in hedge fund products. Although we may still experience periods of cyclicality, the shift we are seeing towards hedge funds is fundamental. Recent poor performance is a small speed bump in the growth of the global industry.

What's your goal for Merrill's equity finance business?

Merrill's prime brokerage equity finance business has not historically occupied the premier spot in the league tables, which is a place that our cash and derivatives business currently holds. Our goal is to bring the scale and depth of our equity finance business up to the standards of our cash and derivatives platforms. We have a high priority investment programme in place to enable us to achieve this. As the industry continues to expand, we expect hedge fund businesses to occupy a larger portion of our revenues and we will be lining up our services for these clients.

Compared to your competitors, Merrill has been late to put a dedicated team on the ground in Hong Kong to service Asian-based hedge funds. What's the reason for this?

I'd emphasise that we've had a strong grounding of business in the Asian region for several years, especially from our global hedge fund clients. Admittedly we have been later than some of our competitors to put dedicated people on the ground in Hong Kong. This year we've made a big push into Asia. We've brought in Melvyn Ford to run the region as head of global equity finance Pacific Rim, added Harvey Twomey as head of sales, Craig Mason as head of prime brokerage and Brian Canniffe to run regional stock lending.

For us, expansion in Asia was part of our global multi-year plan for growing the equity financing franchise. Before basing a large team in Asia, we wanted to be in a position where globally, our systems and expertise were in place. In contrast to the approach taken by some of our competitors, we didn't want to come to Asia prematurely just to raise our profile in the market, and then fail to deliver a top quality product. Now that we've brought our equity finance business online in Asia, we believe we can perform at the highest levels for our clients here, with reporting, trade processing and new product development all handled out of the region here.

What has your experience been with Asian based hedge funds so far? Will it be a challenge for Merrill to build its market share in the region?

We think this has been a good time for us to increase our emphasis on the Asian hedge fund industry. As funds grow in size here, they're looking to diversify their prime brokerage mandates and appoint secondary prime brokerages, so a large chunk of the market is up for bidding and the most responsible service providers will continue to accrue market share. The potential for market share shifts is significant and the largest prime brokerage players are going to see second and third players taking up larger shares of the market.

How do prime brokering services vary in Asia?

Globally, the prime brokerage business is becoming increasingly commoditized and it is more challenging for players to differentiate themselves at the product or concept level. The difference will be made at the people level and based on the strength of the team and the relationships built by individuals who know their clients needs and can execute efficiently for them.

In Asia, the market has evolved from the early days where there were very few substantial players in the space. With fewer players, it was clearer what the differentiating factors were. Funds would then choose a prime broker based on their priorities. For example, certain brokers may have stronger capital introduction teams, and fund managers might choose a broker for this reason.

But the priorities of fund managers are evolving. Maybe 18 to 24 months ago, hedge funds prioritized capital introduction because the Asian industry was still attracting limited attention. Now the industry has matured, the value the prime broker adds to a hedge fund's bottom line comes at the front end. Services such as providing trading ideas and access to stock loan inventories in markets such as Taiwan, Korea and India, come to the forefront and can have a direct and meaningful impact on performance.

Will your prime brokerage services in Asia focus on non-equity strategies as well, such as Asian macro hedge funds?

Globally, the ultimate multi-strategy platform for supporting hedge funds is not yet on offer. Most leading technology platforms are equity based. We can, and do, support some clients with multi-strategy needs but we're very transparent with our clients and have an honest dialogue about what services we can offer them. We don't believe in over-promising and under-delivering. We already have cross-margining and netting capabilities in place and intend to increase the functionalities for multi-strategy funds using our platform over time.