The prime brokerage of RBS, the latest bank to enter the sector in Asia, will be focusing on servicing macro, fixed income and foreign exchange (FX) hedge funds, with the aim of providing a niche offering, says David Gray, head of prime services and client execution for Asia-Pacific.
In doing so, it will be taking on Deutsche Bank in FX and Barclays Capital in the fixed income prime brokerage fields.
“Our strength is in fixed income, interest rates and FX products,” says Gray, who joined RBS in June having served as head of prime services in Asia-Pacific for UBS.
For FX and fixed income, the prime brokerage service is used for credit intermediation, wherein the bank’s credit is used for transactions, enabling hedge funds to buy at better rates than if they had used their own credit.
While equity services – such as securities lending – is also accommodated, it is largely via synthetic prime brokerage products such as swaps.
RBS’s move highlights the growing need for non-equity based offerings in Asia as hedge fund strategies diversify, and the rising need by institutions – such as sovereigns – for such services.
“Part of our client base is hedge funds,” says Gray, in addition to institutional asset managers, and financial institutions that do not have a large network of intermediaries for fixed income and interest rates trades.
Its clientele also includes sovereigns “who are increasingly expanding out from government bonds into interest rate swaps and FX trading”, he adds.
RBS believes it has an edge against competitors as its platform is “purpose-built” for the assets in which it specialises.
“It’s not an equity platform that has been made to accept FX and fixed income products,” says Gray. “RBS has extremely strong franchises in the fixed income and FX worlds.”
Adds Gray: “The large range and depth of FX and fixed income markets means there’s quite a bit of business out there.”
Nonetheless, RBS will find itself among company in the market. Deutsche Bank, the world's largest FX trader by volume, has been building its regional prime brokerage capabilities in fixed income, providing derivatives intermediation to large macro hedge funds in Asia.
Similarly, Barclays is among the largest fixed income traders globally by market share. While its prime brokerage in Asia has had a grounding in synthetics, plans are underway to expand the unit to a full-scale service, providing synthetics, securities lending, listed futures and options and fixed income financing.
RBS's positioning of its prime brokerage as a niche service provider contrasts with the ambitions of other newcomers in Asia.
HSBC has been rolling out prime brokerage services in Asia and Europe on a platform that was initially focused on equity-based strategies, such as long/short equity, but is expanding into FX and other areas.
Meanwhile, JPMorgan is continuing to develop its regional prime brokerage operations since poaching a trio of Credit Suisse executives last year. At the moment, however, it is reportedly focused on servicing the Asian needs of its US and European clients.